Handling Stock Options, RSUs, and ESPP When Exiting the U.S. on H-1B

(UNITED STATES) Tech workers on H‑1B visas who plan to leave the United States permanently are facing pressing decisions about employer equity—especially RSUs, stock options, and ESPP shares—where timing and tax treatment can change sharply the moment employment ends. Lawyers and plan administrators say the key is to act before your last day on payroll, because unvested RSUs are usually forfeited, many stock options expire within 90 days, and access to U.S. brokerage accounts can tighten once you become a non‑resident for tax purposes.

While some departing workers worry about an “exit tax,” typical U.S. employer RSUs are not subject to a U.S. exit tax regime; that regime generally applies to U.S. citizens and certain long‑term residents under special rules, not H‑1B holders. The IRS offers public guidance on expatriation tax rules for those who are covered by them through its IRS expatriation tax guidance.

Common pitfalls and timing urgency

According to analysis by VisaVerge.com, the most common mistake is waiting until after the termination date to review plan documents. By then, exercise windows may have closed and forfeitures may already have occurred.

Equity administrators stress that employers apply plan language as written; HR cannot selectively extend deadlines or vesting. The practical takeaway: review your grant paperwork and plan rules well before your last payroll day.

Restricted Stock Units (RSUs)

• If an RSU has vested before your employment ends, you typically keep it. Vesting triggers ordinary income based on the fair market value on the vest date.
• Unvested RSUs are normally lost at termination, unless your plan includes a special provision (rare outside change‑in‑control or layoff programs).
• If paid in shares at vest, companies usually withhold shares to cover taxes. If paid in cash, the settlement is taxed as wages.
• Employer policy determines settlement mechanics such as same‑day sale, net‑settle shares, or cash vs. share delivery.

Many H‑1B workers ask whether RSUs face a mark‑to‑market “exit tax” when they leave the U.S. Typical employer RSUs do not trigger that treatment. Unless an award is structured as ineligible deferred compensation—uncommon for standard RSUs—there is no U.S. mark‑to‑market tax at departure. The taxable event remains the vesting date (and later any capital gains or losses when you sell).

Practical brokerage note: some U.S. brokers restrict services to non‑residents. If you plan to hold stock after departing, you may need to sell before departure or move shares to a broker that serves non‑U.S. clients.

Stock options — ISOs and NSOs

Stock options carry the most urgency because of short post‑termination windows and tax complexity.

Incentive Stock Options (ISOs)

• Typical rule: 90‑day post‑termination exercise window. Miss it and options generally lapse.
• Exercising ISOs can trigger the Alternative Minimum Tax (AMT) if the spread (exercise price vs. fair market value at exercise) is large.
• To obtain favorable long‑term capital gains treatment, you must hold shares at least two years from grant and one year from exercise.
• Some plans automatically convert unexercised ISOs into NSOs after 90 days; others let them expire. Your grant agreement controls.

Non‑Qualified Stock Options (NSOs)

• Taxed at exercise: the spread is ordinary income, and employers usually withhold taxes.
• Later appreciation or loss is capital gain or loss on sale.
• Major risk: miss the exercise date and the award disappears.
• Exercising outside the U.S. can be complicated by brokerage restrictions and foreign securities rules. Many choose to exercise NSOs while still on U.S. payroll to simplify withholding and avoid access issues.

Employee Stock Purchase Plans (ESPPs)

ESPPs present different timing and tax trade‑offs:

• If you leave during an offering period, the plan may either:
  • Refund your contributions, or
  • Purchase shares on the next purchase date and then deliver them.
    Read the plan to confirm which applies.

Tax rules:
– The IRS distinguishes qualifying vs disqualifying dispositions.
– For favorable treatment, hold ESPP shares for at least two years from the offering date and one year from the purchase date.
– If you meet these rules, part of the gain can be taxed at capital gains rates, and only a limited portion is ordinary income based on the plan discount.
– If you sell sooner, the discount portion is ordinary income, with additional gain taxed as capital gains.

If you plan to move soon, be cautious about starting a new offering period; beginning one just before departure can lock you into holding requirements that are hard to meet from abroad.

Practical off‑plan considerations

Departing workers should plan for mechanics outside the equity plans:

• Brokerage access: Many U.S. brokerages restrict services to residents of specific countries. If you cannot maintain your account as a non‑resident, shares may need to be sold or moved before you relocate.
• Tax withholding: Companies generally withhold taxes at vest or exercise for U.S.‑source wages, but you may need to file a final U.S. return to reconcile amounts.
• Address changes: Keep HR and brokerage profiles current so year‑end tax forms (Form W‑2 for wages or Form 1099‑B for sales proceeds) reach you overseas.

Important: Don’t assume leaving the U.S. erases tax obligations. For many awards the tax clock starts at vest or exercise, and brokerage year‑end forms will follow you.

Plan rules and time‑sensitive checklist

Before your termination date, review every grant and plan document—ideally with HR and the plan administrator on the line. Focus on:

1. Vesting and forfeiture
   • Confirm what vests before your last day and what is forfeited.
2. Exercise windows
   • Note the 90‑day ISO window and any NSO deadlines.
3. Settlement mechanics
   • Understand net share settlement, same‑day sale rules, and cash vs. share delivery.
4. Blackout periods
   • Check trading windows and insider‑trading policies if you’re a restricted person.
5. Country restrictions
   • Ask whether the plan allows exercises or sales while you are outside the United States 🇺🇸.

If you need cash to exercise options, arrange funds now. If you plan to hold company stock, decide whether to consolidate at a broker that can serve you after you move. If you intend to sell, consider liquidity and blackout windows; the last week of employment is often the hardest time to learn your trading platform.

Tax and filing implications after departure

Tax obligations don’t end when you depart:

• For equity awards earned while you were a U.S. tax resident, you remain responsible for U.S. taxes on vesting, exercises, and sales to the extent they are U.S.‑source or tied to U.S. workdays.
• Typical H‑1B workers are not subject to the expatriation “exit tax” like citizens and long‑term residents, but tax reporting still matters.

Summary of tax treatment:
– RSUs: Ordinary income at vest; later sales produce capital gains or losses.
– ISOs: Potential AMT at exercise; favorable rates require meeting holding periods.
– NSOs: Ordinary income at exercise; capital gains/losses on later sale.
– ESPP: Favorable tax treatment only if the two‑year/one‑year holding rule is met.

If your new country taxes foreign‑source income or has its own rules for employee equity, you may face home‑country reporting. Some workers can claim treaty relief, but this is fact‑specific—consult a qualified tax adviser. What you should not do is assume leaving the U.S. wipes the slate clean.

Family and cash‑flow implications

• If your spouse depended on view access to your employer brokerage, they may lose access when your account status changes.
• A missed exercise window can derail housing or other cash plans funded by option exercises.
• Moving during a child’s school term can clash with trading windows; plan liquidity well ahead.

Employers can help by reminding departing H‑1B workers to check post‑termination equity rules during offboarding and by confirming whether their brokers support non‑U.S. addresses. Some companies allow short discretionary extensions for administrative delays, but most do not—plan documents usually govern timing and forfeiture.

Decision strategies and examples

Workers still undecided about departure can stage decisions:

• Exercise a portion of in‑the‑money NSOs before leaving to lock in value and simplify withholding; hold the balance for upside.
• Let unvested RSUs lapse if the plan does not accelerate vesting.
• If ISOs are deep in the money and AMT is a risk, model outcomes with and without exercise. A same‑day sale may avoid AMT but ends long‑term capital gain potential.

These are trade‑offs with real cash impacts—run numbers or consult a tax advisor before acting.

Calendar and payroll timing

Year‑end vesting is common. Small differences in dates can shift tax years:

• Example: If your last day is December 28, you could vest on December 27—and owe ordinary income for that year.
• If your last day is January 3, that same vest could fall into the next tax year.

Pay periods, payroll cutoffs, and vest dates matter as much as flight dates.

Practical steps checklist (action items)

• Make a written inventory of all RSUs, stock options, and ESPP lots, with vest, grant, and expiration dates.
• Book a call with HR and the plan administrator to confirm post‑termination rules and whether your broker serves non‑residents.
• Decide on option exercises before your last day; fund the exercise and confirm trade settlement timelines.
• Clarify ESPP treatment: Will contributions be refunded or used to buy shares on the next date?
• Set up tax support for your final U.S. filings and any treaty questions.
• Update contact details with HR, payroll, and your broker so tax forms reach you on time.

Equity awards can be life‑changing, but they’re unforgiving on deadlines. For H‑1B holders departing the U.S., careful planning around RSUs, stock options, and ESPP shares can prevent accidental forfeitures and unpleasant tax surprises. If you’re unsure whether the exit tax rules apply to you, start by reviewing the IRS overview for who is covered and who is not through the IRS expatriation tax guidance, then confirm your personal status with a tax professional.