Are you in the US? Because what you're describing doesn't sound like how it would work in the US.
When the company IPOs, your vested shares would immediately vest into actual shares. At that point, you would be taxed and awarded a W-2. This is non-negotiable, and this is something that the company would be forced to handle. The idea that you have a lingering tax payment due before lockout period expires doesn't make sense to me. Your RSUs are now shares and when that conversion occurred on IPO date, you would have been taxed. You own no more tax until you sell your shares.
I'm in the US and this sounds... shady but not abnormal.
The company is required by the IRS to do withholding on supplemental income (which RSUs qualify as). There are usually three ways to do this: 1) the employee puts up the cash before vesting day, 2) the company keeps some number of the vested shares and then sends a check to the IRS from their own bank account, or 3) the company sells some number of the vested shares on vesting day and sends the proceeds to the IRS.
I've seen #1 and #3 personally as options when I've had RSU grants. I always chose #3, but I could have also chosen #1 and kept enough cash in my linked brokerage account to cover the tax withholding.
> When the company IPOs, your vested shares would immediately vest into actual shares. At that point, you would be taxed [...] Your RSUs are now shares and when that conversion occurred on IPO date, you would have been taxed. You own no more tax until you sell your shares.
No, that's not how it necessarily works. Companies can hold off on delivering the (vested) RSUs until you are actually able to sell them. That's a good thing, because no one wants to have to pay tax on their vest date if their shares aren't liquid.
Yes, we are in the U.S., but our situation seems quite different from the standard RSU process you described.
We did not receive a W-2, and the company has not reported the RSUs as taxable income yet.
Even though our RSUs fully vested at IPO, they are not yet settled as shares—the company has set the settlement date to March 15, 2025.
The company is requiring us to prepay withholding taxes in cash before they release the shares. If we don’t pay by the deadline, the RSUs will be forfeited entirely.
This is why we are trying to better understand how this aligns with U.S. tax laws and whether this is standard practice.
We agree that this doesn’t sound like how RSUs typically work in the U.S., which is why we are seeking advice. If you have any thoughts on how this situation might fit within U.S. tax regulations, we’d really appreciate your perspective!
I talked to someone who is a Chief Accounting Officer. First off, to be perfectly blunt, you were foolish to wait until 30 days before this occurred before asking questions.
The company has an obligation to withhold tax to the IRS. It sounds like the company doesn't want to spend its own cash to pay this withholding tax so they are forcing ex-employees to fork over the cash, with the threat of forfeiting their shares.
This doesn't sound legal unless it was spelled out in your employee equity grant. The fact that you would forfeit your shares seems wrong. I would read over whatever equity grants you signed.
However the benefit is that you get 100% of your shares and you don't lose any shares to taxes. You could talk to a lawyer but unless you don't have the money to pay the withholding tax (22% of the opening price of the shares on the settlement date unless you own more than $1 million, which then becomes 37%), I would just pay as little as possible and get the shares.
If it is legal, it's the company being an asshole and being really shitty to their ex-employees. Please name and shame them so that we can avoid them.
When the company IPOs, your vested shares would immediately vest into actual shares. At that point, you would be taxed and awarded a W-2. This is non-negotiable, and this is something that the company would be forced to handle. The idea that you have a lingering tax payment due before lockout period expires doesn't make sense to me. Your RSUs are now shares and when that conversion occurred on IPO date, you would have been taxed. You own no more tax until you sell your shares.