Equity is one of the most powerful wealth creation tools for employees working in venture-backed startups and late-stage private companies. As companies scale toward an IPO or acquisition, the structure of equity compensation becomes increasingly important. One of the most common forms of equity in fast-growing private companies is the Double Trigger RSU.
Unlike traditional RSUs at public companies, private company RSUs introduce complexities around liquidity, taxes, timing of income, and cash flow. A standard RSU that vests over time creates an immediate tax bill, even if you cannot sell shares. This can be financially challenging, especially when private company shares cannot be traded.
Double Trigger RSUs were created to solve this exact problem. They ensure employees do not pay taxes until they can actually sell their shares. Understanding how these RSUs work can help you make informed decisions, prepare for a liquidity event, and plan your financial future as your company scales.
What is Double Trigger RSUs?
Double-Trigger Restricted Stock Units (RSUs) are a form of equity compensation typically offered by private companies that require two conditions to be met before the shares fully vest and become owned by the employee. The first condition is usually time-based vesting related to continued employment or performance milestones, such as vesting over four years with a one-year cliff. The second condition is an event-based trigger, commonly a liquidity event like an initial public offering (IPO) or acquisition of the company.
Double-trigger RSUs align employee incentives with company success while managing tax timing and liquidity risks, but require care in planning due to the deferred and concentrated tax event when the liquidity trigger is met.
What Is a Grant of Double Trigger RSUs
A grant of Double Trigger RSUs is essentially your company’s commitment to award you shares in the future once specific conditions are met. It is a part of your compensation package, but you only receive the actual shares after you satisfy both triggers, which include time based vesting and a company liquidity event.
Each time your employer awards you a set of Double Trigger RSUs, it is considered a separate grant. Similar to traditional RSUs, companies may issue these grants when you join the organization, when you get promoted, or as recognition for key achievements. Some companies also include them as a recurring part of annual compensation.
Most employers offering Double Trigger RSUs are private companies that have not yet gone public. If you have spent several years in such a company, you may have accumulated multiple RSU grants over time, each with its own vesting schedule and exit conditions.
When Do Double-Trigger RSUs Become Yours?
Double-trigger RSUs vest only when both conditions in your grant agreement are met: time-based vesting (continued employment) and a liquidity event (IPO/acquisition).
Key challenges:
- Large grants require staying employed long enough and the company achieving liquidity,out of your control
- No personal influence on IPO timing or market conditions
- Tax residency risk: If you return to India during vesting, US ordinary income tax + Indian global income tax applies (post-RNOR)
- DTAA relief: US-India treaty credits US withholding against Indian tax liability
- Currency impact: USD gains convert to INR at liquidity event exchange rates
Plan repatriation timing carefully to optimize RNOR tax benefits and FEMA compliance for equity proceeds.
How Are Double-Trigger RSUs Valued?
Double-trigger RSUs in private companies are valued based on the company's share price determined through formal valuations known as 409A valuations. These valuations estimate the fair market value of the company’s shares and are typically conducted annually or more frequently as the company approaches a liquidity event like an IPO or acquisition. For early-stage startups, the valuation frequency may be less predictable. It is important for NRIs to understand that until a liquidity event occurs, the share value is theoretical and cannot be converted to cash. Once the company goes public, the RSU value is aligned with the current market trading price of the company’s stock.
When Are Double-Trigger RSUs Taxable for NRIs?
For NRIs, Double-Trigger RSUs become taxable only when both the time-based vesting condition and a liquidity event (such as an IPO or acquisition) are met. Unlike single-trigger RSUs that are taxed upon vesting regardless of liquidity, double-trigger RSUs defer taxation until the company’s liquidity event, when shares can actually be sold.
At the liquidity event, all the vested shares you have accumulated become taxable as ordinary income at their fair market value. This often causes a significant tax liability because several years’ worth of vested shares are taxed in a single year. For NRIs, this income is subject to U.S. federal tax withholding at supplemental wage rates, and depending on your residency status, Indian taxation may also apply, potentially offset by Double Taxation Avoidance Agreements (DTAA).
It's important to plan carefully for this "bunching" of income and work with tax advisors who understand cross-border taxation and residency rules to optimize your tax position and ensure compliance with both U.S. and Indian tax authorities.
Why Do Companies Offer Double-Trigger RSUs?
Companies, particularly private and late-stage startups, grant double-trigger RSUs to align employee incentives with the company’s long-term success while managing tax and liquidity risks. This structure requires employees to both remain employed for a set duration and wait for a liquidity event, like an IPO or acquisition, before their shares fully vest. For NRIs, this ensures deferred tax liability until an actual liquidity event when shares can be sold, preventing out-of-pocket tax payments on illiquid stock.
Double-trigger RSUs incentivize employee retention by tying equity realization to company milestones while easing company administration and minimizing dilution risks until significant value creation occurs. For NRIs balancing cross-border tax implications and market uncertainties, this arrangement offers upside potential aligned with company success and flexible tax timing aligned with liquidity.
Conclusion
Double-Trigger RSUs are a valuable equity compensation tool for employees in private and late-stage startups, allowing alignment of employee incentives with company growth while managing tax timing and liquidity risks. For NRIs, understanding the unique tax implications and timing of these RSUs is critical to optimize financial outcomes. Planning ahead for the liquidity event and tax obligations can prevent unexpected burdens and help maximize returns. Platforms like iNRI provide specialized US tax planning services to assist NRIs in navigating cross-border equity compensation complexities smoothly and efficiently.
Frequently Asked Questions
1. What are Double-Trigger RSUs?
They are equity awards in private companies that vest only when two conditions are met: time-based employment vesting and a liquidity event like IPO or acquisition.
2. When do I owe taxes on Double-Trigger RSUs as an NRI?
Taxes are due at the liquidity event when all vested shares become taxable income, not at the time of time-based vesting.
3. How can I pay taxes on large RSU income at liquidity?
Most companies use a "Sell-to-Cover" mechanism, where a portion of vested shares is sold automatically to cover tax withholding.
4. Do Double-Trigger RSUs provide tax benefits compared to single-trigger RSUs?
Yes, they defer taxation until the liquidity event, helping employees avoid paying taxes on unmarketable shares.
5. How does residential status affect Double-Trigger RSU taxation for NRIs?
NROR status provides a tax advantage by exempting foreign income from Indian tax for up to three years, but after becoming a Resident, global income including RSUs is taxable in India, with DTAA mitigating double taxation.
