Equity compensation has become the norm in tech and startup culture, but it’s important to understand not all stock awards are created equal.
Over the last few years restricted stock units (RSUs) have become the most common form of equity comp granted to key employees of both private and publicly traded companies.
And if you’re fortunate enough to have received an RSU grant, then you may have heard the term “double-trigger RSUs.”
These are different from ‘single-trigger’ RSUs and can have a big impact on when you actually receive your shares—and when you owe taxes.
What Are Double-Trigger RSUs?
A single-trigger RSU typically vests over time. As long as you stay employed for the duration of the vesting schedule, you receive shares of stock in your company.
A double-trigger RSU, however, requires two conditions to be met before you get your shares:
- Time-based vesting – You must stay with the company for a set period (e.g., four years).
- A liquidity event – The company must go public (IPO) or be acquired.
Key Planning Note > If your company doesn’t go public or get acquired, your RSUs don’t vest—even if you’ve been there for years.
Why Do Companies Use Double-Trigger RSUs
Startups and pre-IPO companies often use double-trigger RSUs to:
- Delay issuing shares until an IPO or acquisition.
- Avoid tax liabilities for employees before there’s a way to sell shares.
- Retain talent by tying compensation to the company’s long-term success
Tax Implications
- With single-trigger RSUs, shares vest over time, and their fair market value is taxed as ordinary income upon vesting.
- With double-trigger RSUs, there’s no taxable event until both conditions are met.
- When the RSUs do vest (typically at IPO or acquisition), they are taxed as ordinary income at fair market value on the vesting date.
This can create a significant tax burden if a large number of shares vest all at once—especially at IPO, when stock prices can be volatile.
How Does This Play Out In Real Life?
Here’s a potential scenario –
- You join a startup in 2021 and receive 100,000 double-trigger RSUs with a four-year vesting schedule.
- By 2025, your RSUs are fully vested on paper—but your company is still private. No shares. No taxes.
- In 2026, the company goes public. Now, your RSUs fully vest, and you owe taxes on 100,000 shares at the IPO price.
What Should You Do?
If you have double-trigger RSUs, the best thing you can do is lay out a premeditated, rules-based plan that you can execute against when your trading restrictions have been lifted.
What does that look like? Well for starters, you should –
✔ Know your vesting schedule and triggering events.
✔ Plan for taxes—There’s a good chance your RSU withholding is not enough to cover your total tax liability for the tax year of the liquidity event.
✔ Understand your post-IPO trading restrictions (lock-up periods, selling windows).
✔ Consider a liquidity strategy—You’ll likely need extra cash to pay your tax bill. Considering working with an advisor or CPA to develop a tax projection to estimate your future tax liability.
Final Thoughts
Receiving RSUs is an exciting career milestone, but the excitement can quickly turn into stress and overwhelm when navigating the investment and tax decisions that come with them.
Make sure you have the right team and a solid plan in place, so you can confidently move forward knowing you’re prepared when it’s time to act.
If you have questions or would like to learn more, please schedule time with me here so we can have a personalized conversation.
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Ryan Nelson, CPA, CFP® is a Wealth Advisor based out of Minneapolis / St. Paul and serves clients virtually across the United States. Outside of work Ryan enjoys collecting memories by traveling to tropical locations with loved ones, hosting family and friends at his lake home in Northwest Wisconsin, running, searching for great Italian food, and enjoying an americano from an independent coffee shop.
This material is intended for informational/educational purposes only and should not be construed as investment, tax, or legal advice, a solicitation, or a recommendation to buy or sell any security or investment product. Hypothetical examples contained herein are for illustrative purposes only and do not reflect, nor attempt to predict, actual results of any investment. The information contained herein is taken from sources believed to be reliable, however accuracy or completeness cannot be guaranteed. Please contact your financial, tax, and legal professionals for more information specific to your situation. Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Past performance is no guarantee of future results. Talk to your financial advisor before making any investing decisions.