IPO lockup expiration: the tax already happened.
If your restricted stock units were double-trigger, they became taxable income on IPO day, at that day's price, months before you were allowed to sell a single share. Lockup expiration is a liquidity event, not a tax event. Understanding that changes what you should be doing, and when.
What happens, and when.
The order matters, because the expensive part comes first and the flexible part comes last.
| Stage | What it means for you |
|---|---|
| IPO day | If your RSUs are double-trigger, the liquidity condition is satisfied here and everything already time-vested becomes taxable income at the offering or opening price. This is the tax event. It happens on day one, months before you can sell anything. |
| Withholding | Your employer withholds at the supplemental rate of 22%, rising to 37% above $1,000,000 of cumulative supplemental wages. For a large vest at top-bracket income, that is well short of what is owed, and you cannot sell shares to make up the difference yet. |
| The lockup | Typically 180 days, though this is underwriter convention rather than law. Read the agreement: staggered releases and price-triggered early releases are common, and some lockups release a tranche after the first earnings report. |
| Adopting a 10b5-1 plan | A trading plan needs a cooling-off period before it can execute: 30 days for ordinary employees, 90 days or two business days after the next financial statement release for Section 16 directors and officers, whichever is longer. Adopt it well before the window, while you are clean of material nonpublic information. |
| Expiration | Shares become sellable, often alongside every colleague who has been waiting. Volume and price behavior around expiry are unpredictable, which is an argument for a plan set in advance rather than a reaction on the day. |
| The following April | The bill from the IPO-day vest comes due. If the withholding gap was not covered, this is where it lands. |
Taxed on shares you cannot sell.
The structural difficulty of an IPO is that the tax liability and the liquidity arrive at different times. The liability is fixed on IPO day, at IPO-day prices. The ability to pay it arrives roughly 180 days later, at whatever the shares are worth then.
If the price rises over the lockup, that gap is uncomfortable but manageable. If it falls, you owe tax calculated on a value the stock no longer has, and covering it costs more shares than you expected. Neither outcome is knowable in advance, which is precisely why the sizing decision should be made before the window opens rather than during it.
Withholding does not solve this. At 22% on supplemental wages against a top federal bracket plus California at up to 13.3%, a large vest leaves a shortfall that is routinely six figures. Nobody sends a notification. The gap surfaces when the return is prepared, by which point the money has often been committed elsewhere.
What to do in the months beforehand.
Most of the useful work on a lockup happens while you still cannot sell anything.
- Establish what you actually owe from the IPO vestGet the vest report and the withholding figures. Compare the amount withheld against your projected marginal rate including California. The number you want is the shortfall, in dollars, before the lockup lifts rather than after.
- Decide your concentration limit before you look at the pricePick the share of net worth you are willing to leave in one company that also pays your salary. Doing this while the outcome is still unknown produces a better number than doing it on a day when the stock is moving.
- Read the lockup agreement, not the summaryConfirm the expiry date, whether any tranche releases early, and whether a price trigger or an earnings date accelerates part of it. Terms vary between offerings more than the standard narrative suggests.
- Adopt a trading plan early enough for it to workCooling-off periods run from adoption, and adoption requires being free of material nonpublic information. Working backwards from the expiry date usually means starting this conversation a quarter ahead, not a month.
What goes wrong.
- Believing the tax event happens at lockup expirationFor double-trigger RSUs it usually happened at the IPO. Lockup expiry is a liquidity event, not a tax event. The distinction matters because people plan to 'sell some to cover taxes when I can sell', not realizing the liability was fixed months earlier at a price the stock may no longer trade at.
- Assuming the withholding was enoughWithholding at 22% against a top marginal rate, plus California at up to 13.3%, produces a shortfall that is frequently six figures on a large vest. Nothing tells you this at the time. The first signal is often the tax return.
- Waiting until the lockup lifts to make a planBy then your options have narrowed. A 10b5-1 plan needs its cooling-off period to run first, and you may be inside a blackout window or holding material nonpublic information. The useful work happens in the months before expiry, not the week after.
- Treating the expiry date as a deadline to sell everythingIt is a date on which selling becomes possible, not one on which it becomes wise. A schedule that sells in tranches across quarters is usually easier to live with than a single decision made on a day when the price is moving and everyone you work with is talking about it.
- Ignoring the holding period on the shares you keepYour holding period starts at vest, which for double-trigger RSUs is the IPO. Shares sold within a year of that are short-term, taxed as ordinary income. Past a year they are long-term, topping out at 20% federally plus the 3.8% net investment income tax. California taxes both the same.
Figures cited are 2026 amounts. This is educational information, not individualized tax, legal, or investment advice. Trading plan rules and blackout policies are set by your employer and its counsel; confirm your own situation with them. Consult your tax professional before acting.
When this is worth outside input.
If your position is modest and you intend to sell all of it promptly, this is a manageable decision on your own.
It is worth help when the position is large enough to change your life, when you are unsure whether the IPO-day withholding covered your liability, when you are a Section 16 officer or otherwise subject to longer cooling-off requirements, or when you are weighing how much concentration to keep. The window before expiry is short and the useful preparation has to happen inside it.
Austin Creek Capital is fee-only and fiduciary. We do not sell products and we do not take a percentage of your proceeds.
Common questions.
When exactly am I taxed, at the IPO or at lockup expiration?
For double-trigger RSUs, at the IPO. The liquidity condition is what was missing, and the offering satisfies it, so everything already time-vested becomes ordinary income that day at that day's price. Lockup expiration changes only whether you can sell. If your shares came from exercising options rather than RSUs, the timing is different and depends on when you exercised.
Can I sell during the lockup?
Generally no, and the restriction is contractual rather than regulatory. Some agreements permit limited early release, often triggered by a share price threshold or by the passage of an earnings report. Read yours rather than assuming the standard applies, because the terms vary more than people expect.
Should I set up a 10b5-1 plan?
If you expect to sell a meaningful amount and want to remove both timing pressure and insider trading risk, usually yes. The constraint is timing: the plan cannot execute until its cooling-off period runs, 30 days for most employees and up to 90 days or more for directors and officers. You also have to adopt it while free of material nonpublic information, which is a narrower window than most people realize.
How much should I sell when the lockup lifts?
There is no general answer, but the useful frame is not how much to sell. It is how much of your net worth you are willing to leave in a single stock that also pays your salary. Once you have a number for that, the amount to sell follows from arithmetic rather than from a view on the share price.
What if the stock has fallen since the IPO?
This is the painful case, and it is common. You owe tax on the value at vest, which may be well above the current price. Selling at the lower price to pay a bill calculated at the higher one feels like a loss twice over, but the liability does not go away. There may be a capital loss available to offset other gains, which is worth capturing deliberately rather than by accident.
Does California tax this if I move before selling?
Yes, in part. California sources equity compensation by the share of workdays performed in the state between grant and vest. Moving after the shares vest does not undo California's claim on the vest itself. Any later gain is a separate question that depends on residency when you sell.
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