After the Money Lands

I’m Mateo Dellovo, a fiduciary adviser for people paid in company stock. When the deal closes, or the lockup ends and you sell, the money lands and the dates you were watching are behind you. Nothing forces the next decision. That is the risk. This page covers the money side of the year after, from the tax on the payout to what the money is for, and the questions to answer before the money settles wherever it landed.

A payout is rarely one thing, and each part is taxed its own way. Sort it before you do anything else.

Cash paid to cancel your RSUs, stock options or unvested restricted stock is pay. It is taxed in the year it is paid and runs through payroll like a bonus. Retention bonuses, transaction bonuses and severance are pay too.

Cash for shares you already owned is a sale, whether the buyer paid it or you sold after an IPO lockup. That covers shares from earlier vests or from options you had exercised, shares bought through an employee stock purchase plan, and restricted stock you made a section 83(b) election on. The gain or loss is the cash minus your basis, and it is long term for shares held more than a year.

Shares from incentive stock options or an employee stock purchase plan have holding periods, more than two years from the grant and more than one year from the exercise or purchase. Shares sold before then were a disqualifying disposition. For incentive stock option shares, the spread at exercise, capped at your actual gain, is pay. For purchase plan shares, the spread at purchase is pay. Your employer isn’t required to withhold tax on either. Purchase plan shares held past both periods still carry some pay, the lesser of your actual gain or the discount at the offering date, with the rest capital gain.

If the price was paid in the buyer’s stock, different rules apply, and the section on the buyer’s stock covers them.

Your employer can withhold federal income tax on the pay part at a flat 22%. It must withhold 37% on the part of your supplemental pay that passes $1 million in a calendar year from one employer, and a bonus or vest earlier in the year counts toward that million. Every dollar taxed at 35% and withheld at 22% leaves 13 cents unpaid.

For 2026 the 32% bracket begins at $201,775 of taxable income for a single filer and $403,550 on a joint return, the 35% bracket at $256,225 and $512,450, and the 37% bracket at $640,600 and $768,700.

Withholding can miss two more taxes. The extra 0.9% Medicare tax applies above $200,000 of wages for a single filer and $250,000 on a joint return. Your employer withholds it only on your wages above $200,000, whatever your filing status, so a two income household can owe more at filing than was withheld, or less.

Nothing is withheld for the 3.8% net investment income tax, which applies to investment income, the gain on shares you sold included, to the extent your modified adjusted gross income is above $200,000 if you file single, or $250,000 if you file jointly. Those thresholds aren’t indexed.

One thing goes the other way. A large payout early in the year can use up the year’s Social Security wage base, so that employer’s later paychecks that year carry no Social Security tax.

State tax, where your state has one, comes on top. California taxes all capital gains as ordinary income, taxes a gain on stock by where you live when you sell, and taxes equity pay by where the work was done, even after you move. Other states have their own rules.

The IRS expects estimated payments when you’ll owe at least $1,000 after withholding and your withholding covers less than the smaller of 90% of this year’s tax or 100% of last year’s, 110% if last year’s adjusted gross income was over $150,000, or $75,000 if married filing separately. The installments fall in April, June, September and the following January.

Withholding is treated as paid evenly through the year unless you show the IRS when it was actually withheld, so extra withholding later in the year, through a new Form W-4, can cover a shortfall from earlier. An estimated payment counts on the day you pay it. If the money landed late in the year, the annualized method on Form 2210 counts income in the period it arrived, which can lower or remove a penalty for the earlier installments.

The penalty is figured like interest, at the IRS underpayment rate, for each day an installment stays unpaid, and it applies even when you’re due a refund. The rate resets each quarter, at the federal short term rate plus three points.

Many deals pay part of the price later, through an escrow, a holdback or an earnout tied to results. How that money is taxed depends on what you sold and what the agreement says.

If you sold private company stock and some of the price comes in a later year, the sale is generally an installment sale. You report the gain as the payments arrive, unless you elect out by the due date of the return for the year of the sale, extensions included. If your shares were publicly traded when you sold, there is no installment method, and the gain generally belongs to the year of the sale.

An escrow that holds the rest of the price with no condition but time can count as paid when it is funded. One that can be used to pay the buyer’s claims can count only when it is released to you.

A deferred payment with no stated interest can be partly treated as interest, taxed as ordinary income.

Money that depends on you staying employed after the close can be taxed as pay, not as part of the price. And if you held options or RSUs that were cashed out, your share of any escrow or earnout is pay when it is paid, and the tax rules let it follow the shareholders’ schedule for up to five years after the deal.

Write down every payment still owed to you, the date it is due, what it depends on, and whether it is price or pay.

If the buyer assumed or converted your unvested awards, they keep vesting as your plan, your award agreement and the merger agreement provide. Some awards speed up at the sale itself, which is called single trigger. Others speed up only if, after the sale, you’re let go without cause or leave for good reason, which is called double trigger. The documents decide, so read them.

A converted RSU is taxed like any RSU. The value delivered on each vest is pay, withheld as supplemental wages, at the buyer’s share price that day. An incentive stock option the buyer swaps for its own stays an incentive stock option if the swap adds no new benefit, the total spread doesn’t grow, and the ratio of option price to share value doesn’t become more favorable.

Unvested awards are usually forfeited if you leave, unless the documents say otherwise.

If you work for the buyer now, its insider trading policy applies to you, and its trading windows may too. The law turns on whether you’re aware of material nonpublic information when you trade, whether a window is open or not. Public companies have to disclose whether they have an insider trading policy and file it as an exhibit to the annual report, so you can read yours.

If you sell the buyer’s stock at a loss within 30 days before or after a vest of the buyer’s stock, the wash sale rule can disallow the loss. Many practitioners treat a vest as an acquisition for this rule.

In a deal that qualifies as a reorganization under section 368, exchanging your shares only for the buyer’s stock is not taxed when it happens. If you also received cash, gain is taxed up to the amount of the cash, and a loss isn’t allowed. Your basis carries over to the buyer’s shares, adjusted for any cash and gain, and so does your holding period, so long term stays long term.

Whether the deal was meant to qualify is in the merger proxy or the Form S-4, if there was one, under a heading such as Material U.S. Federal Income Tax Consequences. If there wasn’t, ask the company what tax treatment the deal was meant to have. After the close, the buyer reports the effect on basis on Form 8937, often posted on its investor relations site. If the deal didn’t qualify, the exchange was a taxable sale at the value of the shares you received.

Now the buyer’s stock may be the biggest thing you own. The SEC puts it plainly. You’ll be exposed to significant investment risk if you invest heavily in shares of your employer’s stock or any individual stock. Decide how much of your net worth you want in it, counting the converted awards that haven’t vested yet.

If you sold stock that qualified under section 1202, part or all of the gain can be excluded from federal tax. For stock acquired on or before July 4, 2025, the exclusion needs more than five years. For stock acquired after that date, it’s 50% at three years, 75% at four and 100% at five. The exclusion per company is capped at the greater of ten times your basis or a dollar limit. The dollar limit is $10 million, or $15 million in 2026 for stock acquired after July 4, 2025. When the exclusion is 50% or 75%, the rest of that gain is taxed at up to 28%. Gain above the cap is taxed at the usual long term rates.

If your qualifying stock was exchanged in a reorganization for a buyer’s stock that doesn’t qualify itself, the buyer’s shares carry the exclusion only for the gain built in at the exchange. Growth after that doesn’t qualify. California doesn’t follow the federal exclusion and taxes the whole gain.

The forms for the year arrive early the next year. If a broker held your shares when they were bought for cash, the broker reports the cash on Form 1099-B. For awards granted after 2013, the basis it shows leaves out the income you were already taxed on as pay, because the rules don’t let brokers add it. You correct it on Form 8949, or you pay tax on that income twice.

Your W-2 carries the pay part. Box 12 code V shows income from exercising nonqualified options. If the deal triggered the golden parachute rules, box 12 code K shows the 20% excise tax on any excess parachute payment, owed on top of income tax. Those rules can reach officers, owners of more than 1% of the stock and the top 1% by pay, and the cash sale guide explains the test.

If you paid alternative minimum tax in an earlier year because you exercised incentive stock options, part of it may come back as a credit on Form 8801 against regular tax in later years. Incentive stock option shares also carry a second, usually higher, basis for the AMT, so keep both.

Every month the cash sits where it landed, you’re choosing to leave it there. Set the tax reserve aside first, for the balance due and any estimated payments. Then decide what the rest is for in the next few years, and only then where it goes.

Know what protects it while it waits. A bank deposit is insured by the FDIC up to $250,000 per depositor, per insured bank, for each ownership category. Stocks, bonds and mutual funds aren’t deposits. At a SIPC member brokerage firm that fails, SIPC protects customers up to $500,000, including $250,000 for cash, and doesn’t protect against a fall in the value of securities.

If you give to charity, long term shares are generally deductible at their fair market value, up to 30% of adjusted gross income for gifts to public charities, with the excess carried forward up to five years. Starting in 2026, an itemizer deducts only the charitable gifts above 0.5% of adjusted gross income, and for income in the 37% bracket an itemized deduction is worth 35 cents on the dollar, not 37.

If the deal ended your job, COBRA generally lets you keep the employer’s health coverage for up to 18 months, at up to 102% of the plan’s total cost of providing you with coverage, at employers with 20 or more employees.

Vested options have a window to exercise after you leave, often three months, and they expire if you miss it. An incentive stock option keeps its status only if you exercise within three months after your employment ends, with a one year window after a disability and no tax deadline after a death.

If your 401(k) pays you directly instead of rolling straight to another plan or an IRA, the plan must withhold 20% for income tax, and rolling over the full amount within 60 days means making up that 20% from other money. A direct rollover has no withholding. Where the money goes is a separate decision.

1. Which parts of the payout were pay and which were a sale, and which tax year did each land in?
2. What was withheld on the pay part, and how does it compare with your total tax for that year, federal and state?
3. Do you need an estimated payment, and would the annualized method help if the money came late in the year?
4. What money is still to come, when is it due, what does it depend on, and is it price or pay?
5. Which awards converted into the buyer’s awards, when do they vest, and do they speed up if you’re let go?
6. If you were paid in the buyer’s stock, did the deal qualify as a reorganization, and what are your basis and holding period now?
7. Did any shares you sold qualify under section 1202, and how long had you held them?
8. Does the basis on your Form 1099-B match your records, and do you have an AMT credit from an earlier exercise?
9. If the deal ended your job, when does your health coverage end, and what deadlines come with your options and your 401(k)?
10. How much of your net worth now sits in one stock or one bank, and how much do you want there?
11. What is the money for in the next few years?