What employees of late-stage private companies should decide before an IPO, while the decisions are still theirs to make.

For employees holding equity in late-stage private companies.

Executive Summary

Companies are staying private far longer than they used to. In the 1980s the median company that went public was 8 years old; for 2001 through 2025 the median was 11, and in 2024 it was 14.¹ More of an employee's wealth now builds up on paper before any listing, which makes the listing one of the largest financial events of a career.

Most people picture that event as a payday. It is closer to a sequence. Tax generally comes first, on a value you did not choose. Then a lockup. Then rules about when and how you may sell. Then a portfolio that is mostly one stock. Each step has decisions attached, and several of them are easier, or only possible, before the listing.

This paper is educational. It predicts nothing about any company, any offering, or any share price, and it does not describe any specific employer's equity plan. Tax and legal points are general and are meant to be reviewed with your CPA. Sources appear at the end, followed by the full arithmetic behind the hypothetical.

Questions and Answers

1. Why are companies staying private so much longer, and why does that matter if I work at one?

Private capital is now deep enough to fund a company for a decade or more without public markets. Professor Jay Ritter's IPO data at the University of Florida shows the median age at IPO moving from 8 years in the 1980s, to 5 at the height of the 1999 to 2000 boom, to 11 across 2001 through 2025.¹ For an employee, the consequence is arithmetic. Years of grants pile up while the shares cannot be sold, so a large part of your net worth may sit in a single asset you cannot yet price or trade. When a listing does come, everything that accumulated tends to arrive at once.

2. What do I actually own: options, RSUs, or both?

Many long-tenured employees hold both, because companies often grant options early and switch to restricted stock units later. An option is a right to buy shares at a fixed price; an incentive stock option (ISO) and a nonqualified stock option (NSO) look alike on a grant notice and are taxed very differently.^4,11 An RSU is a promise to deliver shares in the future. At private companies RSUs are commonly "double-trigger": a time-based requirement plus a liquidity event, such as an IPO or acquisition, must both be met before shares are delivered.³ The table below is a general summary. Your grant documents control, and they are worth reading before anything else in this paper.

Table 1: How Different Equity Types Are Generally Taxed

General summary of federal treatment, for illustration only. Sources 3, 4, 11, 12.

3. How are double-trigger RSUs taxed when my company goes public?

Generally, you owe ordinary income tax on the fair market value of the shares at the time they are delivered to you.³ The liquidity trigger is the piece that catches people. If you have satisfied the time condition on four or five years of grants, a single event can settle all of them, and all of that value is generally taxed in one calendar year as wages. Your cost basis in the shares generally becomes the value included in income, so you are not taxed twice on the same dollars when you later sell.^3,4 The exact settlement date and the price used are set by your plan, which is one reason to confirm them with your employer and your CPA.

4. Will my employer's withholding cover the tax?

Often it will not, and the size of the shortfall depends on how large the event is. RSU income is generally treated as supplemental wages, and IRS Publication 15 for 2026 sets federal withholding on supplemental wages at 22%, rising to 37% on the portion above $1 million paid in a calendar year.⁵ The top federal bracket in 2026 is 37%, and it begins at $768,700 of taxable income for a married couple filing jointly and $640,600 for a single filer.⁶ So someone whose settlement is under $1 million can be withheld at 22% on income that is largely taxed in the 32% to 37% range. The difference is generally due through estimated payments or with the return, and the timing rules for avoiding underpayment penalties are a specific conversation to have with your CPA before the year of the listing ends.

5. What is a lockup, and what can happen to my shares during it?

A lockup agreement prohibits company insiders, including employees, from selling shares for a set period after an IPO. The SEC's Investor.gov notes that terms vary but that most lockups run 180 days.⁷ That figure is a market convention written into a contract. It is not a law, and the actual terms are disclosed in the company's registration documents.⁷ Two things follow for an employee. Your tax may be fixed on a value set before you are allowed to sell, and Investor.gov cautions that a stock's price may drop in anticipation of locked-up shares reaching the market when the lockup ends.⁷

6. What is a 10b5-1 plan, and why might I need to decide how to sell before I'm allowed to?

Once your company is public, you may regularly hold information the market does not have, and trading windows can close with little notice. A Rule 10b5-1 plan is a written, pre-arranged instruction to sell on a set schedule or formula, which can provide an affirmative defense to insider trading claims if the plan's conditions are met. Under amendments the SEC adopted in December 2022, a plan must be entered into and operated in good faith and carries a cooling-off period before the first trade: 90 days for directors and officers, extending in some cases up to 120 days, and 30 days for other persons.^8,9 The amendments also restrict overlapping plans and limit single-trade plans to one in any 12-month period.⁹ The practical point is that the decision about how much to sell, and at what pace, generally has to be made in advance and in writing, at a moment when you do not know what the price will be.

7. My company ran a tender offer. Should I have sold, and what does it tell me?

A tender offer is a solicitation by a company or a third party to buy a substantial percentage of a company's securities.¹⁰ At a private company it is often the only chance employees get to turn some equity into cash before a listing. Whether selling was right depends on facts that are yours alone: how much of your net worth the stock represents, what else you own, and what the cash was for. The tax result generally depends on what you sold and how long you held it, and it can differ sharply between option shares and other shares, so it is worth reviewing with a CPA before the next one. A tender price is evidence of what one buyer paid on one date. It says little about what a public market will pay later.

8. If I hold stock options, should I exercise before or after the listing?

There is no general answer, because the trade is between tax and risk. Exercising an NSO generally creates ordinary income on the spread at exercise.^4,11 Exercising an ISO creates no regular income tax, but the spread is generally included for alternative minimum tax in that year unless the shares are sold in the same year, and AMT paid may be recoverable later as a credit.¹² To have the whole ISO gain treated as long-term capital gain, the shares generally must be held more than two years from the grant date and more than one year from exercise.⁴ Exercising early starts those clocks but puts real cash, and possibly real tax, into shares you cannot yet sell. The qualified small business stock exclusion exists as well, but it generally requires that the issuer's gross assets were under a statutory limit when your shares were issued ($75 million for stock issued after July 4, 2025, and $50 million before), so it rarely applies to shares issued by a very large company.¹³

9. How does Washington tax what I sell after the IPO?

Two different taxes are involved, and they should be kept separate. Washington does not currently tax wages, so RSU income at settlement is generally not taxed by the state today. Washington does impose an excise tax on long-term capital gains: 7% above an annual standard deduction, which the Department of Revenue lists as $278,000 for 2025 and adjusts for inflation each year, plus an additional 2.9% on the portion above $1 million, effective for tax year 2025 forward.^14,15 Because it reaches only long-term gains, it generally applies to appreciation after settlement on shares held more than a year.^14,21 There is also a change coming: the 2026 Legislature enacted a 9.9% income tax on individuals and married couples with annual income above $1 million, which the Department of Revenue says takes effect January 1, 2028.¹⁶ Published commentary indicates it reaches compensation and that legal challenges are anticipated, so the year in which a large settlement falls may matter and should be reviewed with your CPA.¹⁷ California is different today: it has no lower rate for capital gains, and its top rate is 12.3% plus a 1% tax on taxable income over $1 million, or 13.3%.^18,19 If you worked in California during the vesting period, some of the income may be taxable there even if you now live in Washington.

10. How much of the stock should I keep once I can sell?

That is a personal decision, and this paper does not make it for you. Published third-party guidance offers reference points. The Schwab Center for Financial Research suggests a portfolio may be overly concentrated when one stock exceeds 10% of it, or 20% if you are restricted from selling, and separately describes managing toward a 10% to 20% range for investors with flexibility to diversify.^2,20 Most employees after a listing are far above that, often without having chosen to be. A useful test is to imagine the position as cash. If you held that amount in cash today, would you put this much of it into this one stock? Your salary, your future grants, and your shares all depend on the same company, which is the part that the percentage alone does not capture.

11. Can anything reduce the tax on a liquidity event?

Some things can, but most of the strategies people hear about do not touch this particular bill, and it helps to sort them by the kind of income they offset. RSU income at settlement is wages, and only a deduction against ordinary income reduces it. Charitable gifts, including gifts to a donor-advised fund, are the most widely used, within annual limits and the federal rules that took effect in 2026; our paper Give the Shares, Keep the Cash covers those in detail. Certain direct oil and gas working interests can also produce deductions against ordinary income, because the tax code excludes a working interest from the passive activity rules when it is held directly or through an entity that does not limit the owner's liability.²³ That unlimited liability is a real cost, and these are illiquid, speculative investments generally limited to accredited investors. Two other tools are often suggested for this moment and do not fit it. Loss harvesting through direct indexing or long/short direct indexing creates capital losses, which offset capital gains and then only $3,000 of other income per year.²² Qualified opportunity fund deferral applies to gain from a sale, not to wages.²⁴ Both become relevant later, when you sell shares that have appreciated since settlement. Each of these carries its own risks, costs and eligibility rules, and none should be chosen for the deduction alone, so review any of them with your CPA.

General summary of federal treatment, for illustration only. Strategy categories are shown for education and are not recommendations. Sources 22, 23, 24.

12. What should I do in the 90 days before and after a listing?

Before, the work is mostly inventory. Gather every grant agreement and plan document, count your units and options by type and vesting status, and confirm with your employer how settlement and withholding are expected to work. Then have a CPA model the tax across a range of prices, including the gap between withholding and the likely bill, and decide where that cash will come from. After, the work is discipline. Put a sell plan in writing while you are calm, learn your company's trading windows and whether a 10b5-1 plan is available to you, and set aside the tax money before you count anything else as yours.

A Worked Hypothetical

Hypothetical, for illustration only. This is not a real person, does not describe any company or any plan, and does not predict any offering or share price.

Consider a hypothetical senior engineer at a late-stage private AI company with a Seattle-area office. She is married and files jointly. Her salary is $350,000. Over several years she has satisfied the time condition on double-trigger RSUs that are worth $4,000,000 at the offering value, and all of them settle in the year of the listing. Her employer withholds federal tax at the supplemental rates by holding back shares. We use 2026 federal brackets and the 2026 standard deduction, and we ignore Social Security and Medicare taxes, other income, other deductions, and any state tax. Full steps are in the Calculation Notes. Some plans deliver shares at or after the end of the lockup instead of at the listing; in that case the income is set at the value on that later date, and the comparison below would change.

Hypothetical, for illustration only. Sources 5 and 6.

Three things stand out. First, the tax is $1.46 million on shares she has not been able to sell. Second, the gap of about $128,000 is due in cash, generally through estimated payments or with the return, and during a lockup she cannot raise it by selling the stock. Third, the tax does not follow the price down. If the shares are 30% lower when the lockup ends, the $4,000,000 award is worth $2,800,000 in total, yet the federal income tax on it is still $1,458,283, or about 52% of what the award turned out to be worth. Selling at the lower price would generally produce a capital loss, and capital losses offset ordinary income only to a limited extent each year.

The gap is also not proportional. With a $900,000 settlement instead, all of the withholding would be at 22% while most of the income would fall in the 32% to 37% brackets, so the shortfall would be larger relative to the award.

Final Thoughts

The common picture of an IPO is a single day on which paper becomes money. For an employee it is closer to a year of deadlines, and the first one is a tax bill.

None of this is a reason to dread a listing. It is a reason to do the unglamorous work early: know what you hold, know what it will cost, and decide how you will sell before you are in a position where the price decides for you.

The question most people ask is "what will my shares be worth?" Nobody can answer that. The better question is one you can answer today: what do I want this equity to pay for, and how much of it needs to stop being one stock for that to happen?

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Sources

1. Jay R. Ritter, Warrington College of Business, University of Florida, "Initial Public Offerings: Median Age of IPOs Through 2025," December 31, 2025.
2. Charles Schwab, Timothy Kee, "Financial Planning with Equity Compensation," July 13, 2026.
3. Carta, "Restricted stock units (RSU): How they work, benefits, and taxes," August 6, 2026.
4. Internal Revenue Service, Publication 525 (2025), "Taxable and Nontaxable Income."
5. Internal Revenue Service, Publication 15 (2026), "(Circular E), Employer's Tax Guide."
6. Internal Revenue Service, News release IR-2025-103, "IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill," October 9, 2025.
7. U.S. Securities and Exchange Commission, Investor.gov, "Initial Public Offerings: Lockup Agreements," accessed October 6, 2026.
8. U.S. Securities and Exchange Commission, Press release 2022-222, "SEC Adopts Amendments to Modernize Rule 10b5-1 Insider Trading Plans and Related Disclosures," December 14, 2022.
9. U.S. Securities and Exchange Commission, Fact Sheet, "Rule 10b5-1: Insider Trading Arrangements and Related Disclosure" (Release 33-11138), December 2022.
10. U.S. Securities and Exchange Commission, Investor.gov, "Tender Offer," accessed October 6, 2026.
11. Internal Revenue Service, "Topic no. 427, Stock options," last updated September 24, 2026.
12. Internal Revenue Service, "Instructions for Form 6251 (2025), Alternative Minimum Tax, Individuals."
13. Legal Information Institute, Cornell Law School, 26 U.S. Code Section 1202, "Partial exclusion for gain from certain small business stock," accessed October 6, 2026.
14. Washington State Department of Revenue, "Capital gains tax," accessed October 6, 2026.
15. Washington State Department of Revenue, Special notice, "New tiered rates for Washington's capital gains tax," June 30, 2025.
16. Washington State Department of Revenue, "Income tax," accessed October 6, 2026.
17. BDO USA, "Washington Enacts Millionaires' Tax, Changes to Estate Taxation," April 28, 2026.
18. California Franchise Tax Board, "Capital gains and losses," accessed October 6, 2026.
19. California Franchise Tax Board, "2025 California Tax Rate Schedules" and "2025 Form 540 Personal Income Tax Booklet."
20. Charles Schwab, Mark Riepe, Schwab Center for Financial Research, "How to Manage Stock Concentration Risk," April 10, 2026.
21. Internal Revenue Service, "Topic no. 409, Capital gains and losses," accessed October 6, 2026.
22. Legal Information Institute, Cornell Law School, 26 U.S. Code Section 1211, "Limitation on capital losses," accessed October 6, 2026.
23. Legal Information Institute, Cornell Law School, 26 U.S. Code Section 469, "Passive activity losses and credits limited," accessed October 6, 2026.
24. Legal Information Institute, Cornell Law School, 26 U.S. Code Section 1400Z-2, "Special rules for capital gains invested in opportunity zones," accessed October 6, 2026.

Calculation Notes

Hypothetical, for illustration only. All figures are federal income tax only.

Assumptions. Filing status: married filing jointly. Tax year: 2026. Salary: $350,000. RSU settlement value: $4,000,000. No other income. Standard deduction for 2026, married filing jointly: $32,200. No other deductions or credits. RSU income is the only supplemental wage paid in the year (no bonus). Withholding on salary is assumed to equal exactly the tax on salary alone, so the gap shown is attributable to the RSUs. Withholding on the RSUs is satisfied by holding back shares at the settlement value. Ignored: Social Security tax, Medicare tax and Additional Medicare tax, net investment income tax, alternative minimum tax, state taxes, underpayment penalties and interest.

2026 brackets, married filing jointly: 10% to $24,800; 12% over $24,800; 22% over $100,800; 24% over $211,400; 32% over $403,550; 35% over $512,450; 37% over $768,700.

Step 1. Taxable income with the RSUs. $350,000 + $4,000,000 = $4,350,000. Less $32,200 = $4,317,800.

Step 2. Federal income tax on $4,317,800

Step 3. Federal income tax on salary alone. Taxable income: $350,000 less $32,200 = $317,800. Tax through the 22% bracket: $2,480 + $9,120 + $24,332 = $35,932. Plus 24% of ($317,800 less $211,400 = $106,400) = $25,536. Total: $61,468.

Step 4. Tax attributable to the RSUs. $1,519,750.50 less $61,468.00 = $1,458,282.50 (shown as $1,458,283).

Step 5. Withholding on the RSUs. 22% of $1,000,000 = $220,000. 37% of $3,000,000 = $1,110,000. Total: $1,330,000, which is 33.25% of $4,000,000.

Step 6. Gap. $1,458,282.50 less $1,330,000.00 = $128,282.50 (shown as $128,283).

Step 7. Shares remaining and the 30% scenario. Value of shares remaining after withholding: $4,000,000 less $1,330,000 = $2,670,000. At a price 30% lower: $2,670,000 × 0.70 = $1,869,000. Whole award at the lower price: $4,000,000 × 0.70 = $2,800,000. Tax as a share of that value: $1,458,282.50 ÷ $2,800,000 = 52.1%. The tax in Step 4 does not change, because the income was fixed at the settlement value.

IMPORTANT DISCLOSURES

This paper is intended for educational purposes and does not constitute tax, legal, or investment advice. Individual circumstances vary significantly. Please consult with a qualified tax or financial professional before making decisions. All hypotheticals in this paper are for illustration only. They do not represent any actual person, account, or outcome, and actual results will differ. No company is named in this paper. Nothing here describes any specific employer's equity plan, and nothing here predicts or implies the timing, pricing, or likelihood of any offering or the future value of any security. Third-party guidance cited is provided for reference and is not a recommendation. Tax rules are described as understood in October 2026 and are subject to change, including through legislation, regulation, and litigation. State tax treatment depends on residency and where services were performed. Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit or protect against loss. Options strategies and Rule 10b5-1 trading plans involve additional rules, costs, and risks and are not suitable for everyone. Third-party sources are believed to be reliable, but their accuracy and completeness are not guaranteed. Securities and Investment Advisory Services are offered through Osaic Wealth, Inc., member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Osaic Wealth does not offer tax or legal advice.