INSIGHT

Will I Owe Taxes When My Company Goes Public? What an IPO Means for Employees

Tami McInerney • July 9, 2026

Services: Private Client Services

---

You’ve spent years at a company, believed in what you were building, and accepted stock as part of your compensation. Now an IPO is on the horizon, and suddenly that equity on paper is about to become real money, making financial planning after liquidity especially important. That’s a great problem to have. It also comes with a tax bill that can catch people completely off guard if they haven’t planned ahead.

This article walks through what employees and executives with stock compensation need to know about taxes when a company goes public, including the key decisions that can make a real difference in what you keep.

Your Equity Type Changes Everything

The first thing to get clear on is what kind of equity you hold, because the tax treatment varies significantly depending on the type.

Incentive Stock Options

Incentive Stock Options (ISOs) are often seen as the more tax-friendly option. You generally don’t owe regular income tax when you exercise them. However, the spread between your exercise price and the fair market value at exercise, often informed by a 409A valuation, can trigger the Alternative Minimum Tax (AMT), a calculation that blindsides a lot of people.

If you hold the shares long enough after exercise, at least one year from exercise and two years from the original grant date, your gain may qualify for long-term capital gains rates, which are much lower than ordinary income rates.

Nonqualified Stock Options

Nonqualified Stock Options (NSOs) work differently. The moment you exercise an NSO, the spread between what you pay and what the shares are worth is taxed as ordinary income, whether you sell or not. Your employer typically withholds taxes on that amount. Any gain beyond that point is subject to capital gains tax, short-term or long-term depending on how long you hold the shares before selling.

Restricted Stock Units

Restricted Stock Units (RSUs) are generally the most straightforward to understand, but the numbers can be large. When your RSUs vest, the value of those shares on that date is treated as ordinary income. At an IPO, when share prices can jump, a single vesting event can create a significant and immediate tax obligation.

The Lockup Period Doesn’t Delay Your Tax Bill

Most employees at newly public companies face a lockup period, typically around 180 days, during which they can’t sell their shares. Here’s what many people don’t realize: a lockup period doesn’t delay your taxes. If your RSUs vested on the day of the IPO, you owe income taxes on that value even though you can’t touch the shares yet. That timing gap is one of the most stressful parts of an IPO for employees who haven’t prepared. Having a plan for that cash before the IPO date is far better than scrambling to find it after.

The 83(b) Election: A Decision with a Hard Deadline

If you hold restricted stock or exercised options early in the company’s history, the 83(b) election may already be in your rearview mirror. But if it isn’t, it’s worth understanding clearly. When you file an 83(b) election with the IRS within 30 days of receiving restricted stock or early exercising options, you choose to pay taxes based on the value at that moment rather than when the stock vests.

For employees who received stock when the company was worth very little, this can mean a dramatically smaller tax bill. The catch is the 30-day window. Miss it and the election is gone. If the company’s value has climbed significantly between when you received the stock and when it vests, the tax difference can be substantial.

California Adds Another Layer

If you live in California, your tax situation is more complex. The state does not have a preferential tax rate for capital gains. California taxes capital gains as ordinary income, regardless of how long you hold the shares. Combined with the state’s high marginal income tax rates, a large equity event can result in a combined federal and state tax burden that feels far higher than anticipated. It’s also worth knowing that if you’ve moved between states while holding equity, some states have rules about taxing compensation that was earned while you were a resident, even if you’ve since relocated.

What You Can Still Control

Even with a firm IPO timeline, you have more options than you might think. Spreading exercises and sales across tax years can help keep income out of the highest brackets. If charitable giving vehicles vehicles are apart of your life, integrating that into your plan around a liquidity event can offset taxable income in a meaningful way. Running tax projections before the IPO gives you a realistic picture of what you’ll owe, what you’ll keep, and what decisions still make sense to act on.

Working with BPM

An IPO is one of the most significant financial moments in a person’s life, and the tax decisions surrounding it are too important to figure out on the fly. BPM’s Private Client Services team works directly with individuals, including employees, executives, and founders, to build personalized tax strategies around liquidity events like these.

The goal is to help you understand what you owe, identify every opportunity to reduce it, and make sure nothing catches you off guard. If your company is heading toward a public offering, now is the time to get ahead of it. Contact us to connect with a Private Client Services advisor and start planning before the window closes.