RSUs at a private company: a tax bill with no shares to sell
RSUs at a public company are straightforward: shares vest, some are sold for taxes, the rest are yours to keep or sell. At a private company, the same tax rules apply — but there's no market to sell into. You can owe thousands in tax on shares you cannot convert to cash. This is the single most important thing to understand about startup RSUs.
Why the tax hits anyway
The IRS taxes RSUs when they vest, based on the fair market value that day — regardless of whether the shares are liquid. For private companies, that value comes from the company's 409A valuation, an independent appraisal of the share price. If your RSUs vest when the 409A price is $12, each share is $12 of taxable W-2 income, even if no buyer exists at any price.
Single-trigger vs. double-trigger RSUs
This distinction determines whether you actually face the cash problem:
- Single-trigger: RSUs vest on time alone (e.g., four-year vesting). Tax is due at each vest date — with no liquidity. This is the painful version, and the reason employees at some startups set aside part of every paycheck for years.
- Double-trigger: RSUs require two events — time-based vesting plus a liquidity event (IPO or acquisition). The tax bill arrives at the second trigger, which is usually when you can finally sell shares to cover it. Most late-stage startups use double-trigger RSUs precisely to avoid the cash problem.
Check your grant agreement to find out which type you hold. It changes your planning completely.
How to plan for the bill
- Know your vest dates and the current 409A price. Multiply them: that's your rough taxable income per vest. Your company or equity platform usually publishes the 409A price.
- Build a tax reserve from salary. With single-trigger RSUs, treat each upcoming vest like a known bill. Setting aside your estimated marginal rate (federal + state) on the vest value, in a savings account, is the boring approach that works.
- Ask about liquidity options. Some companies run tender offers (company-arranged buybacks) or allow limited secondary sales. These are never guaranteed, but they exist more often than employees assume — ask your equity admin.
- Don't count on a future sale to fix a past bill. Tax is due for the year of vesting. Selling shares two years later doesn't retroactively cover it.
The nightmare scenario (worth knowing)
You pay income tax on $100,000 of vested private-company shares. The company later fails and the shares become worthless. You get a capital loss — but capital losses can only offset $3,000 of ordinary income per year. You paid tax at income-tax rates on $100,000 and recover the loss at $3,000 a year for decades. This asymmetry is the real risk of single-trigger private RSUs, and it's why financial planners are so insistent about the cash reserve.