What is a double-trigger RSU?

A restricted stock unit that requires two conditions before it delivers shares: (1) a time/service vesting condition, and (2) a liquidity event such as an IPO or company-approved tender. Both must occur. Private companies use them so employees are not taxed on illiquid shares they cannot sell.

When are double-trigger RSUs taxed?

At settlement, when the second trigger occurs. The full value of all vested-but-unsettled units becomes ordinary income at the share price on the settlement date, often producing a large one-year income spike at an IPO.

Why do I owe more tax than was withheld on my RSUs?

Employers typically withhold federal tax on supplemental income at 22% up to $1M (37% above), but a large RSU settlement can push your real marginal rate higher, leaving a gap you must cover through estimated payments or at filing.

Double-trigger RSUs: why your IPO comes with a tax bomb

Most private-tech RSUs are double-trigger. It's a sensible design that quietly sets up the single biggest tax event of many employees' lives — all landing in one year, often with too little withheld. Here's the whole mechanic, and how to be ready.

Single vs. double trigger

An RSU is a promise to deliver shares when conditions are met. The trigger is the condition:

Single-trigger (typical at public companies): one condition — time-based vesting. Shares deliver and are taxed as they vest, on a schedule.
Double-trigger (typical at private companies): two conditions — vesting and a liquidity event (IPO, or a company-approved tender/sale). Both must happen before shares deliver.

Why private companies use double-trigger: it would be cruel (and a cash-flow trap) to tax employees on shares they can't sell. The liquidity trigger ensures you don't owe ordinary income until there's at least a path to selling. The trade-off: your tax bill stacks up silently in the background, then arrives all at once.

What happens at the second trigger

Everything settles together. Years of vested-but-unsettled units convert to shares simultaneously. Their full value becomes ordinary income at the settlement-day price.
One-year income spike. Someone with four years of vested RSUs can see a single year's W-2 jump by multiples of salary — frequently into the top federal bracket, plus state, plus the additional Medicare and (on later sales) NIIT.
Withholding usually undershoots. The standard 22% federal supplemental rate (37% above $1M of supplemental wages) is often well below your real marginal rate on a large settlement. The gap is yours to cover.
The clock starts at settlement. Your shares' cost basis equals the settlement price, and the long-term capital-gains holding period begins then — not when you were hired.

The trap in one sentence: you can owe a six- or seven-figure tax bill on shares that may still be locked up — so the cash to pay it has to come from somewhere you planned in advance.

How this shows up by company

At an IPO — the classic version. RSUs settle at the offering; see the Figma post-IPO playbook for the settlement-plus-lockup squeeze, and SpaceX's staggered-unlock case.
In a tender — some programs settle (or let you sell) vested RSUs in company-organized windows; see Stripe's annual tender.
When a company drops the second trigger — vested RSUs settle while still private, taxing you with no automatic market to sell into. Databricks did exactly this.
At an unusual structure — units that aren't ordinary RSUs (e.g. OpenAI's PPUs) follow their own rules; don't assume RSU mechanics.

How to plan for it

Project the income now. Estimate vested units × a plausible settlement price = the ordinary income you're carrying. Re-run it as valuations move.
Pre-fund the withholding gap. Assume 22% won't be enough; earmark the difference, and plan quarterly estimates the year of settlement.
Coordinate selling with the lockup. If shares lock at IPO, you may owe tax before you can sell — model sell-to-cover, a 10b5-1 plan, and the unlock calendar together.
Decide concentration before the window opens. Pick a target percentage and a glidepath while you're restricted; execute on rules when you can trade.
Mind state and timing. A multi-state work history or a planned move can change the bill on a one-year spike materially.

Put rough numbers to it with the net-proceeds calculator, then get the real figure modeled.

Settlement coming? Model the bill before it lands.

Get matched with a fee-only fiduciary who plans RSU settlements — income projection, withholding gaps, sell-to-cover, and lockup-aware selling. Free, no obligation.