When you leave a company, your vested equity generally stays yours and your unvested equity is forfeited the day you walk out. What happens to your shares if you leave the company depends on the type of equity you hold, how far into your vesting schedule you are, and whether you act within the deadlines your plan sets after your last day. Stock options, restricted stock units, and employee stock purchase plan shares each follow different rules, and the tax consequences of handling them wrong can cost more than the equity is worth.
Vested Stays, Unvested Goes
Every equity grant comes with a vesting schedule that controls when shares shift from a future promise to something you actually own. On your last day, the company draws a line. Anything vested belongs to you, or you have the right to buy it. Anything unvested is forfeited. There is no partial credit for being close to a vesting milestone.
Most plans use a one-year cliff followed by monthly or quarterly vesting over the rest of the grant period. Leave one day before the cliff and you walk away with nothing from that grant. After the cliff, each additional month of service unlocks another slice. The specific schedule is in your grant agreement; the broader rules sit in the company’s equity incentive plan.1SEC.gov. FIGS, Inc. 2021 Equity Incentive Award Plan
Before giving notice, pull your vesting schedule and calculate what you would forfeit at different departure dates. People routinely leave a few months before a large vesting event without fully grasping what they are giving up. Sometimes waiting a month changes the math dramatically.
Stock Options and the 90-Day Clock
Vested stock options are not shares. They are the right to buy shares at your strike price, and that right expires on a short deadline after you leave. Miss the window and the options are worthless, no matter what the stock is worth on paper.
The standard post-termination exercise period is 90 days. For incentive stock options, federal tax law requires exercise within three months of leaving to preserve the favorable ISO tax treatment.2Office of the Law Revision Counsel. 26 USC 422 – Incentive Stock Options
Some later-stage startups now offer extended exercise windows of one to ten years. These help, but there is a catch for ISO holders: if you exercise more than three months after leaving, the options automatically convert to non-qualified stock options. The spread between your strike price and fair market value at exercise then becomes taxable as ordinary income rather than receiving ISO treatment.3eCFR. 26 CFR Part 1 – Certain Stock Options
Finding the Cash to Exercise
Exercising requires money. You pay the strike price on every share you buy, plus tax withholdings. For someone with thousands of vested options at a company whose value has risen, this can mean writing a check for tens or hundreds of thousands of dollars within 90 days of losing a paycheck.
Two alternatives reduce the upfront burden. A cashless exercise simultaneously exercises and sells all shares, with the broker netting out the strike price, taxes, and fees from the proceeds; you receive cash rather than stock. A net exercise uses a portion of the shares themselves to cover the exercise cost, leaving you with fewer shares but no out-of-pocket payment. Neither method is universally available, so check your plan before counting on either.
When you exercise non-qualified stock options, the company withholds taxes on the spread as supplemental wages. For 2026, the federal flat withholding rate on supplemental wages is 22%, rising to 37% for supplemental wages above $1 million in the calendar year.4IRS. 2026 Publication 15 (Circular E), Employer’s Tax Guide State withholding adds to that. Withholding is not your final tax; expect either an additional bill or a refund at filing time.
The AMT Problem With ISOs
Exercising incentive stock options creates a tax trap that catches people off guard. The spread at exercise is not taxed as ordinary income for regular tax purposes, but it is treated as an adjustment for the alternative minimum tax.5Office of the Law Revision Counsel. 26 USC 56 – Adjustments in Computing Alternative Minimum Taxable Income If the spread is large enough, you can owe AMT without having sold anything or received a dollar in cash.
For 2026, the AMT exemption is $90,100 for single filers and $140,200 for married couples filing jointly, phasing out starting at $500,000 and $1,000,000 respectively.6IRS. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A large single-year exercise can push you well past these thresholds and generate a five- or six-figure tax bill on shares you still hold. This is how people end up owing more in taxes than they have in liquid assets.
Model the AMT impact before exercising. Spreading exercises across tax years, or exercising only enough shares to stay below the phase-out, can meaningfully reduce the hit. Your employer must furnish IRS Form 3921 after the year you exercise ISOs, and it contains the figures you need to calculate any AMT owed.
Restricted Stock Units
RSUs work differently. You buy nothing. Once they vest, the company delivers shares (or cash of equivalent value) to you. The question on departure is whether vested RSUs have been settled yet, and whether any sit in a state that will or will not pay out.
If RSUs have vested but not settled, delivery timing may fall under Section 409A of the Internal Revenue Code, which regulates deferred compensation. For certain highly compensated employees classified as “specified employees,” the law requires a six-month delay between separation and distribution.7Office of the Law Revision Counsel. 26 USC 409A – Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans Violating 409A’s timing rules triggers a 20% penalty tax on top of ordinary income tax, plus interest. The company’s plan administrators handle the mechanics; knowing the delay exists keeps you from panicking when shares do not appear right away.
Any RSUs not vested by your departure date are forfeited. Unlike stock options, there is no post-termination window to act on unvested RSUs. Once you leave, those units are gone.
Double-Trigger RSUs at Private Companies
Many private companies use a double-trigger RSU structure. The units require both continued service and a liquidity event, such as an IPO or acquisition, before they settle. If you leave after meeting the service requirement but before any liquidity event, your RSUs may remain outstanding and settle later when the event occurs, depending on the plan’s terms.
These awards typically carry an expiration date. If no liquidity event happens within the specified term, the RSUs are forfeited even if you satisfied the service condition years earlier. The structure exists because delivering shares in a private company creates 409A complications, and tying settlement to a genuinely uncertain liquidity event avoids them.
ESPP Shares
ESPP shares follow simpler rules. Any shares you already purchased through payroll deductions are yours. There is no vesting period on purchased ESPP shares and the company cannot take them back.8Office of the Law Revision Counsel. 26 USC 423 – Employee Stock Purchase Plans
If you leave mid-purchase period before a buy date, your accumulated deductions are refunded without interest. You lose the discount you would have received on those shares, but the cash comes back. There is no option to complete a partial period after departure.
One point people miss: ESPP shares carry holding periods for favorable tax treatment. You need to hold them at least two years from the grant date and one year from the purchase date. Selling earlier is a disqualifying disposition, and the discount is taxed as ordinary income rather than capital gains. Leaving the company does not change these holding periods.
Early-Exercised Shares and the 83(b) Election
Some startup plans let you exercise options before they vest. If you did this and filed an 83(b) election with the IRS within 30 days of exercise, you paid tax on the value at that early date rather than at vesting.9Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services
Leaving creates a hard problem. You own the vested shares outright, but any unvested shares purchased through early exercise are typically subject to a company repurchase right at the price you originally paid. You get your money back for the unvested portion and lose those shares. The tax you already paid on the unvested shares through the 83(b) election does not come back. The statute specifically prohibits a deduction for property forfeited after an 83(b) election was made.9Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services
The upside is that your vested early-exercised shares are genuinely yours, and the long-term capital gains clock started when you filed the election, not when the shares vested.
If the Company Is Private, Your Shares May Not Be Liquid
Owning vested shares in a private company does not mean you can sell them. Two restrictions appear in nearly every private shareholder agreement.
A right of first refusal requires you to offer your shares to the company or existing shareholders before selling to an outside buyer. If you find someone willing to pay $50 a share, the company can step in and buy at that price. Only if the company declines does the outside sale proceed.
A repurchase option gives the company the right to buy back your vested shares at fair market value, typically within a set period after you leave; 180 days is common. The company is not required to repurchase, but many do, particularly to keep the cap table clean. The price must reflect genuine fair market value to withstand challenge.
If the company goes public while you still hold shares, you will likely be subject to a lock-up agreement that prevents selling for 90 to 180 days after the IPO. This applies to former employees who acquired shares before the offering. The price can move substantially during the lock-up, and you cannot act until it ends.
If the Company Is Acquired After You Leave
A sale or merger reshuffles the equity picture for everyone, including former employees. If you hold vested shares or exercised options, they are typically converted to the acquisition price or exchanged for acquirer stock on the same terms as every other shareholder.
Unvested equity for people still employed at closing depends on acceleration provisions.
- Single-trigger acceleration: unvested equity vests automatically on sale of the company. This is relatively rare and most common for founders or advisors, as investors generally resist it.
- Double-trigger acceleration: unvested equity accelerates only if the company is sold and the employee is involuntarily terminated (or resigns for good reason) within a defined period after closing, typically 9 to 18 months. This has become the more common structure.
If you have no acceleration provision and the acquirer does not assume your unvested grants, those grants are typically cancelled. Some deals cash out unvested equity at closing, but acquirers have no obligation to do so unless the plan or your agreement requires it.
How the Reason You Leave Changes the Outcome
Not every departure plays out the same way.
A voluntary resignation is the baseline. You keep vested equity, get the standard post-termination exercise window for options, and forfeit unvested shares under normal plan terms.
A layoff or involuntary termination without cause usually follows the same rules, though some agreements include severance-related vesting acceleration or extended exercise periods. Read your offer letter and any separation agreement for equity-specific provisions.
Termination for cause is where things turn harsh. Many plans include “bad leaver” clauses that go beyond standard forfeiture: reducing the repurchase price on vested shares to nominal value, shortening or eliminating post-termination exercise windows, or attempting to claw back vested equity entirely. Enforceability varies, and courts have pushed back on provisions they consider disproportionate, but the burden of challenging them falls on you.
Separately, publicly traded companies must maintain clawback policies for executive officers that require recovery of incentive-based compensation received during any period covered by a financial restatement. These clawbacks operate on a no-fault basis and apply whether or not the executive was responsible for the error.
What to Gather Before Your Last Day
Access to your equity information often disappears within days of your last day. Pull everything while you still have login credentials.
- Every grant agreement, including amendments. These control your specific terms.
- The equity incentive plan document. The plan governs where the grant agreement is silent, and generally controls in conflict.
- Your current vesting schedule showing exactly how many shares or units have vested and the dates for upcoming milestones.
- Strike prices for each option grant. You need these to calculate the total exercise cost.
- The company’s most recent 409A valuation (private) or current trading price (public). This determines the spread and your tax exposure.
- The name and contact information for the plan administrator, since you will need to reach them after your access is cut off.
With these in hand, calculate the total cost of exercising your vested options, including strike price and estimated withholdings. If the number is large relative to your savings, find out whether your plan allows cashless or net exercises. For ISOs, model the AMT impact before committing. An hour with a tax advisor who specializes in equity compensation costs very little compared to the mistakes people routinely make in this transition.