What Can Happen to Your Unvested Company Stock in a Company Acquisition?

By Nicole Young on June 9, 2025

Article by Private Vista Advisor, Miles Johnson, CFP®

Restricted Stock Units (RSUs) and Performance Stock Units (PSUs) (or performance stock awards) have increased in popularity in recent years as a common way companies attract and retain talent. These stock grants from employers typically vest (or are delivered) over a set timeframe and/or when performance metrics have been met. During a merger or acquisition, employees of the acquired company can experience a level of uncertainty regarding what will happen to their unvested stock, as it is not announced until the merger or acquisition agreement is finalized. Thankfully, mergers and acquisitions tend to be drawn out over months, giving the employees time to weigh out the potential outcomes for their stock.

Potential Outcomes for Unvested RSUs/PSUs

1. Accelerated Vesting
   The terms of your grant agreement will specify if some or all your unvested RSUs/PSUs may vest immediately upon “change of control” (merger or acquisition) of the employee’s company, creating a cash windfall subject to taxes.
2. Assumption or Conversion
   RSUs/PSUs may be converted into equivalent RSUs/PSUs of the acquiring company, often with a new vesting schedule.
3. Cash-Out
   The acquiring company may buy out your existing RSUs/PSUs for cash, stock, or a combination of both. The value of the unvested RSUs/PSUs is subject to the terms of the agreement between the two companies.
4. Cancellation
   In rare cases, unvested RSUs can be canceled, especially if the acquired company is in a distressed situation or the acquiring company opts to exclude prior stock agreements from the merger or acquisition agreement.

Tax Treatment of Unvested RSUs in an Acquisition

Accelerated Vesting

• Treated as ordinary income when paid out.

Conversion

• No immediate tax impact if the RSUs/PSUs are converted into equivalent awards by the acquiring company.

Cash-Out

• The cash received is taxable income.
• In a taxable exchange, capital gains tax applies to the difference between the total value received and your original basis.
• In a tax-free exchange, only the cash portion is taxed.

Tax Treatment of Vested RSUs/PSUs in an Acquisition

Sale or Exchange

• Upon vesting, RSU/PSU become company stock. In an acquisition, the acquiring company may require the outstanding shares from the acquired company to be sold or exchanged for shares of the acquiring company.
• If shares are sold, they will be taxed at capital gains rates based on the difference between sale price and fair market value at vesting.
• If shares are exchanged:
  • Tax-free share swap: No tax due; original cost basis and holding period carry over.
  • Taxable exchange: Capital gains tax applies; cost basis in the new shares reset.

Tax Planning Strategies

Explore Charitable Giving

RSUs/PSUs vest or are cashed out during the acquisition, it can significantly increase your taxable income in the year which the acquisition occurred. Making charitable donations to a Donor Advised Fund (DAF) in the same calendar year can help reduce your tax liability.  

Pre-Tax Contributions

Increasing pre-tax contributions reduces your taxable income which can help offset income generated from unvested company stock that is subject to an accelerated vesting schedule or cash-out during an acquisition. Below are some useful tools employees can use to reduce their taxable income. 

• Max out your 401(k) contributions ($23,500 in 2025; $31,000 if over 50).
  • Contribute to a Health Savings Account (HSA) or Flexible Spending Account (FSA) if eligible.
  • Use a Dependent Care FSA if you have qualifying childcare expenses.

Plan for Withholding Gaps

Employers often withhold at a flat rate (e.g., 22% or 37%) on RSU/PSU income, which may be less than your actual tax liability. Employees going through a merger should consult with their tax professional to determine if they should make estimated payments to avoid penalties or being to set aside additional cash to cover the shortfall when they file returns.

Understand Your Employment Terms

• Review your RSU/PSU and employment agreements.
• Some RSUs/PSUs only vest if you’re terminated after the acquisition (double-trigger).
• Ask for new RSU/PSU grants or performance shares from the acquiring company as part of a retention package.
• Consider the financial impact of staying vs. leaving your company.

Final Thoughts

An acquisition can be a turning point in your financial life. With the right planning, you can turn uncertainty into opportunity. It is important to review your existing stock agreement to understand what would happen to your company’s stock in the event of a merger or acquisition. If you would like help in better understanding your stock agreement for RSUs/PSUs, reach out to an advisor at Private Vista to help you better optimize your company stock.

Article written by: Miles Johnson, CFP®