Restricted stock units (RSUs) are a grant of shares given to employees with a time-based vesting schedule, often spanning four years. As portions of your granted shares vest, they become yours.

Before their IPOs, companies typically grant double-trigger RSUs, which are RSUs that have an event trigger. This trigger — whether it be an IPO or acquisition — must occur before the shares are transferred to your ownership. The transfer of RSU shares is called a settlement or release.

Restricted stock units are taxed as ordinary income at release, which is the marker for the taxable event. RSUs are subject to mandatory withholding at supplemental wage withholding rates, often causing gaps between what’s withheld at release and what you actually owe come tax time. Once your RSU shares are released, any subsequent gains are taxed as either short- or long-term capital gains, depending on the holding period.