IPO Day: What Happens to Your Equity — And What You Should Do

Your company is going public today. Most guides focus on the 12 months before or the 180 days after lockup expires. This one covers the day itself — what happens to your shares, what's taxable now, and what moves matter in the next 24 hours.

Double-trigger RSUs: the liquidity event fires

If you hold double-trigger RSUs — the default at most pre-IPO companies — your grants have two vesting conditions: a time-based schedule and a liquidity event (IPO or acquisition). Today, the second trigger fires for any RSUs that have already satisfied the time condition.

What happens next:

1. Settlement processing: Your equity plan administrator (Fidelity, E*Trade, Morgan Stanley at Work, Carta, or Shareworks) receives the IPO trigger notification and processes the release. This typically takes 1–3 business days from IPO pricing — shares do not appear instantly.
2. Shares appear in your account: You'll see the vested shares in your equity plan account first. You cannot sell them yet — the lockup agreement prevents that — but they are recorded as yours.
3. Tax recognition: Settlement triggers ordinary income under IRC § 83(a) equal to the fair market value on the settlement date (usually the IPO price or the closing price on settlement day).⁴ Your employer withholds at the 22% federal supplemental rate and pays it to the IRS before you see the net shares in your account.
4. Cost basis clock starts: The FMV on settlement day becomes your cost basis for any future sale. The long-term capital gains holding period (12 months) starts on this date — not your original grant date.

ISOs and NSOs: what the IPO changes (and doesn't)

If you hold exercised ISOs or NSOs, the IPO itself doesn't create a new tax event — your tax obligation arose when you exercised. What the IPO changes is your liquidity and your holding period calculus.

ISOs you already exercised

An ISO qualifying disposition requires holding the shares at least 2 years from the grant date and 1 year from the exercise date. Check both clocks:

• If you exercised more than 12 months ago: the 1-year LTCG clock may already be satisfied. After lockup, a qualifying sale is taxed at capital gains rates (0%–20% federal + NIIT) rather than ordinary income rates (up to 37%).
• If you exercised within the past 12 months: selling at lockup expiration would trigger a disqualifying disposition — the spread is taxed as ordinary income. You may want to hold past the 1-year mark (even if that's beyond Day 181).
• ISO exercises within the past year also carry AMT exposure if you held instead of doing same-day exercise-and-sell. Use the ISO AMT calculator to model your 2026 AMT liability and whether carrying it into next year makes sense.

Unexercised ISOs

If you still hold unexercised ISOs at IPO, you now have two realistic paths:

• Exercise during lockup and hold: Starts the 1-year LTCG clock and the 2-year ISO qualifying period. You pay AMT now on the spread, but recover it via AMT credit in future years when your regular tax exceeds your AMT. If your share price grows, you benefit from LTCG rates on that appreciation.
• Wait until lockup expires and do cashless exercise-and-sell: Simple — no cash outlay, no AMT. But the entire spread (exercise price to IPO/sale price) is ordinary income. For a $100K spread at a 45% effective rate, that's $45K in extra taxes versus a qualifying disposition at 23.8% federal LTCG + NIIT.

This decision requires projecting multiple years of taxes. The spread at IPO, the AMT credit recovery timeline, and the probability that the stock price holds matter enormously. A specialist advisor will model this during the lockup period, not the morning after it expires.

NSOs

NSOs trigger ordinary income equal to the spread (FMV minus strike price) on the day of exercise, regardless of when the IPO happens. The lockup restricts your ability to sell shares — it does not restrict you from exercising options. If you want to exercise NSOs during lockup, you can — you just can't sell the resulting shares until Day 181.

The lockup agreement: what it actually says

The 180-day lockup is not an SEC rule. It is a contractual commitment — in your grant agreement, offer letter, or a separate lockup agreement signed as a condition of employment or grant — not to sell, transfer, short, hedge, or pledge your shares for 180 days after the IPO pricing date.¹

The 180-day count starts from the IPO pricing date shown on the final prospectus — not from when your shares settle in your account, and not from when trading begins. A one-day difference in your lockup expiration date can matter if earnings blackout windows surround that date.

What to do on IPO day (and in the 48 hours after)

1. Confirm every grant settled correctly

Log into your equity platform. Every RSU that had satisfied its time-based vesting before the IPO should have settled. If a grant is missing or shows the wrong share count, contact your equity plan administrator immediately — errors caught on Day 1 are far easier to resolve than errors caught at lockup expiration.

2. Record your cost basis

The per-share FMV on settlement day is your cost basis for capital gains calculation on any future sale. Your broker's platform may auto-populate this, but verify it. RSU cost basis errors — where the broker shows $0 instead of the fair market value at vest — are common and create an enormous phantom tax liability if not caught and corrected before you file. See the RSU tax reporting guide for the correction process.

3. Calculate your estimated tax shortfall and the deadline

Your employer's 22% withholding is likely well short of your real marginal rate. Estimate the gap: (real effective rate − 22%) × settlement value. Set this aside in a liquid account now. Then identify which quarterly estimated tax deadline applies:³

• Settlement in Jan–Mar 2026: Estimated payment due April 15, 2026
• Settlement in Apr–May 2026: Due June 15, 2026
• Settlement in Jun–Aug 2026: Due September 15, 2026
• Settlement in Sep–Dec 2026: Due January 15, 2027

The safe harbor: pay at least 90% of your 2026 tax liability, or 110% of your 2025 tax (if 2025 AGI exceeded $150,000).² IPO year income usually dwarfs any prior-year baseline — the 90%-of-current-year target is typically the safer track if you can estimate it.

4. Note your lockup expiration date

Count 180 days from the IPO pricing date. Put it on your calendar — and put it on your advisor's calendar. If that date falls in a quarterly blackout window (which is common, since lockup expirations often align with post-IPO earnings periods), you may need a 10b5-1 plan to sell through the window.

5. Start planning the 180 days

The lockup period is your planning window. Once lockup expires, the pressure to make decisions quickly creates behavioral risk. The employees who have the best outcomes at lockup expiration are the ones who spent the 180 days building a disciplined plan: which shares to sell, in what order, over what timeline, through what mechanism.

See the IPO lockup expiration strategy guide for the full framework, including the LTCG timing math, 10b5-1 plan design, charitable giving with appreciated shares, and state residency considerations.

IPO day checklist

1. ☐ Log into equity platform — confirm every vested RSU grant has settled
2. ☐ Record per-share FMV on settlement date (your cost basis going forward)
3. ☐ Calculate: (real marginal rate − 22%) × settlement value = estimated April shortfall
4. ☐ Transfer the shortfall estimate to a liquid savings account, earmarked for taxes
5. ☐ Identify which quarterly estimated tax deadline applies and add to calendar
6. ☐ Record your lockup expiration date (IPO pricing date + 180 days)
7. ☐ For ISO holders: identify which grants are within 12 months of exercise (disqualifying disposition risk)
8. ☐ For unexercised ISO holders: model exercise-during-lockup vs cashless-at-lockup tradeoff
9. ☐ Contact an equity-comp advisor if settlement proceeds exceed $500K — the planning decisions compound quickly