How does the equity vesting schedule work for Americans?

Your equity vesting schedule determines when you fully own the stock or options your employer promised you. It's a timeline for how much equity you've earned and when you can claim it.

If you've joined a company that offers equity compensation, you probably have questions about when that equity becomes yours, what happens if you leave early, and, in general, how it all works.

Here's everything you need to know about this topic.

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What does equity vesting mean?

Vesting is how you earn ownership of the equity your company granted you.

When you first receive an equity grant, such as stock options, restricted stock, or RSUs, you don't own it outright. You have to earn it by meeting specified requirements over time.

These requirements are usually time-based, and the rule typically is: stay employed through the vesting period, and the equity is yours; leave before it vests, and you lose it.

Once equity vests, it's yours to keep. You can exercise options, sell shares, or hold them depending on the type of equity and your company's rules.

How does the equity vesting schedule actually work?

An equity vesting schedule is a timeline that shows when portions of your grant become yours.

Most schedules spread your equity over multiple years. A common structure is 4 years, where you gradually earn your full grant over that period.

Some schedules also include a waiting period called a "cliff" before any equity vests.

For example, if you get 1,200 shares with a 4-year monthly vesting schedule and no cliff, 25 shares vest each month for 48 months. After 2 years, you've vested 600 shares.

If you leave at that point, you keep the 600 vested shares but lose the remaining 600.

The most common vesting schedules in the US

4-year vesting with a 1-year cliff

This is the standard schedule at most startups and tech companies.

You get your total equity grant upfront, but none of it vests during your first year.

After 12 months, 25% of your grant vests all at once. The remaining 75% vests gradually (usually monthly) over the next 3 years.¹

4-year vesting with no cliff

Some companies skip the cliff and start vesting equity from day one. With this schedule, your equity vests in equal portions throughout the 4 years.

For example, if you have 4,800 shares on a 4-year monthly vesting schedule with no cliff, 100 shares vest every month starting from your first month.

Graded vesting schedules

Graded vesting releases different percentages of your equity at set intervals.

For example, 20% might vest after year one, 30% after year two, 30% after year three, and the final 20% after year four.

It's less common than linear schedules, but it still happens.

Performance or milestone-based vesting

Instead of vesting based just on time, some equity grants require you or the company to hit certain targets. These targets might be revenue goals, performance metrics, or other important milestones.

Your equity vests only when those milestones are reached.

For example, a product manager might vest 40% of their grant after launching a new feature that reaches 100,000 users, and the remaining 60% after that feature generates 1 million USD in revenue.

This type of schedule is riskier because you can't predict when the equity will vest, or if it will vest at all.

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What does the cliff mean?

A cliff is a set period where you have to stay employed before any equity becomes yours. Once you cross it, you'll vest a big portion of your grant—usually 25%.¹

But if you leave before, you get zero equity.

Most companies use a 12-month cliff. In other words, you'll need to work at the same company for a full year before a single share vests.

Once you clear the cliff, the remaining equity vests incrementally, typically every month, until you hit the end of your total vesting period.

What types of taxes do you have to deal with in the US?

It depends on the type of equity you have and when you access it.

Stock options (ISOs and NSOs)

ISOs and NSOs are both types of stock options that let you buy company shares at a fixed price.

Different tax rules apply to them:

• ISOs: You may owe alternative minimum tax (AMT) when you exercise, and if you hold the shares long enough, your gains get taxed at the lower long-term capital gains rate
• NSOs: When you exercise, you're taxed on the gap between what you paid and what the shares are worth, and you pay capital gains tax on any increase in value after that

ISOs offer better tax treatment if you follow the holding period rules, but they come with AMT risk, which can create a large tax bill. NSOs don't have holding requirements or AMT complications, but you'll pay higher ordinary income tax rates when you exercise.

RSUs (Restricted Stock Units)

RSUs are taxed as ordinary income when they vest.

When your RSUs vest, the IRS treats the value as regular income, just like a paycheck. Your employer withholds taxes automatically at that point. If you sell the shares later for more than they were worth at vesting, you pay capital gains tax on the increase.

Restricted stock

Restricted stock gives you shares upfront, but they're not yours until they vest.

You're taxed on the value of the shares when they vest, unless you make an 83(b) election within 30 days of receiving the grant. The 83(b) election lets you pay taxes at grant instead of vesting, which can save you money if the stock price rises a lot over the vesting period.²

FAQs

What is a typical vesting schedule for equity?

The most common schedule is 4 years with a 1-year cliff.

You don't vest anything during your first year, and then 25% of your equity vests all at once after 12 months. The remaining 75% vests monthly over the next 3 years. This timeline is pretty standard across startups and tech companies.

What happens when your equity vests?

When your equity vests, you get ownership of those shares or the right to exercise those options.

For RSUs and restricted stock, the shares transfer to your brokerage account, and you owe income tax on their value. For stock options, vesting means you can now buy the shares at your strike price whenever you're ready. Vested equity stays yours even if you leave the company.

What does "equity vested over 4 years" mean?

It means that your total equity grant is spread across a 4-year timeline, and you earn portions of it as you stay employed at the same company. Pieces of your grant become yours at regular intervals, such as monthly, quarterly, or annually.

If you leave the company before everything has vested, you keep whatever has vested up to that point but forfeit the rest.

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Sources

1. Carta - Vesting
2. Carta - Filing an 83(b) election

Sources checked 05/27/2026