RSUs turn into shares of your company’s stock when they vest. They’re typically issued by companies valued at over $1 billion.
RSUs are subject to either single- or double-trigger vesting. Single-trigger RSUs can vest before IPO. This means you’ll owe taxes on them as they vest (because you’re coming into ownership of new shares of stock). However, if the company is still private, you won’t be able to sell those shares to make money to pay the taxes you owe on them.
That’s why many companies instead offer double-trigger RSUs, which only vest after the IPO. That way, you’ll only owe taxes once the company is public and you can actually sell those shares. So, for the year that your company IPOs, be prepared to pay taxes on any double-trigger RSUs that you vest.
When your RSUs vest (whether before or after IPO), you’ll owe ordinary income tax on the 409A value of your newly issued shares as of that day. Then, when you sell those shares, your profit (i.e. [sale price - 409A value as of the day the shares vested]) will be taxed as capital gains. These qualify for long-term capital gains tax treatment if you hold onto the shares for over a year.
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