What Happens to My RSUs in an Acquisition? One Year of Wages, Withheld at 22%.

A software engineer four years into a private company reads the all-hands email: the company is being bought for cash at $10.00 a share. They hold 28,600 restricted stock units that met their service condition long ago and never settled, because the grant was double-trigger and there was never a liquidity event. Now there is one. So what happens to my RSUs in an acquisition, and why is the deposit so much smaller than 28,600 times $10.00?

Everything depends on where each unit sits on the closing date, and the merger agreement decides that, not the Code. The equity section of the agreement and the employee FAQ the company circulates with it are the two documents worth reading before you plan around anything.

Units that already satisfied their service condition settle at closing. A double-trigger grant conditions settlement on both continued service and a liquidity event, and an acquisition is the liquidity event, so the second trigger fires and four years of accumulated units settle at once. §83(a) measures the income at fair market value, which here is the per-share deal price, and the entire amount is ordinary wages in Box 1. Selling the company does not convert it into capital gain. It is the same rule that makes RSUs taxable the moment they vest, arriving in one year instead of four. At a public company that group is usually empty, because those units settled on their vesting dates years ago.

Unvested units go one of three ways. The buyer assumes them and converts them into buyer units on the same schedule, and nothing is taxable at closing. Or the buyer cancels them and credits a cash replacement award payable on the original vesting dates, which is deferred compensation under §409A and has to be drafted to comply with it. Or the deal accelerates everything into the closing year. The middle case is the one people misread. The cash is credited and vested, but it is not yours to call for early: §409A(a)(1)(B) adds a 20% additional tax plus interest at the underpayment rate plus one percentage point if the payment schedule bends, so nobody is going to bend it because you found a new job.

That is 33.9% of the payout in federal income tax against 22% withheld. Nothing is broken. The flat rate is exactly what Treas. Reg. §31.3402(g)-1 allows on supplemental wages up to $1,000,000 from one employer, with a mandatory 37% above that, and Publication 15 spells out both. It is a withholding convention, not a forecast of your rate. The other two taxes come out correctly, which is why the income tax is the only piece that misses, and it misses by $34,130.

I priced a large one-time bonus for a client couple on this exact question and used the marginal-rate method rather than the effective rate, layering federal, state, Social Security, and Medicare on top of their projected base income. Their base was hard to pin down because of a deferred compensation plan, and an effective-rate estimate would have been off by five figures. For a one-time payout the only number that matters is the rate on the next dollar, meaning the top bracket the payout reaches, not the average rate the return ends up showing.

In a cash deal the units settle into shares and those shares are exchanged for merger consideration the same day. The paying agent handling that exchange has no record of what your employer put on your W-2, so Form 1099-B arrives showing $286,000 of proceeds with box 1e blank or at zero. Software takes the box at face value, and the same $286,000 gets taxed once as wages and again as a short-term capital gain. That is about $102,500 of federal income tax on income that does not exist, plus $10,868 of net investment income tax under §1411 that wages would never have attracted.

The fix is mechanical. Your basis in those shares is the amount that already ran through the W-2, which is the deal price times the share count, so the real gain is zero or within pennies of it. Report the sale on Form 8949, enter code B in column (f) for a basis the broker reported incorrectly, and put the correction in column (g). Check it every year, including on a return software prepared for you. The error runs both directions: leave the sale off the return entirely and the unmatched proceeds come back as a CP2000 notice proposing tax on the whole $286,000.

Not send it early. Check the safe harbor first. Under §6654(d)(1)(C), when the adjusted gross income on your prior-year return was over $150,000, you avoid the underpayment penalty by paying in 110% of last year's total tax through withholding and estimates. Last year's tax in this example was about $38,000, so the target is roughly $41,800, and salary withholding alone clears it before the payout adds $62,920 on top. There is no penalty to avoid. The $34,130 is simply due April 15, 2027, and the job is to still have it in cash that day.

An estimate earns its keep in narrower cases: a closing early in the year followed by months of unemployment, a prior year with almost no tax on it, or a state running its own safe harbor on different terms. Two things are worth doing before the deal closes instead. Ask whoever administers the equity plan whether they will withhold under the aggregate method rather than the flat rate, which pulls closer to your real bracket and costs you nothing but cash flow. Then read the holdback terms, because a slice of the consideration sitting in escrow for 12 to 18 months is wages when it is paid, which drops it into a different tax year and quietly splits the income across two returns.

One group this post does not reach: if your grant was single-trigger, the units settled at the 409A value on their vesting dates and you paid that tax years before the deal. The only federal relief written for that problem is §83(i), and almost no plan qualifies for it.