The 409A valuation sets your option strike price: valuations update every 12 months, and the audit trail (grant dates, valuation dates, sales, and plan terms) decides the tax treatment. Keep the paper — the IRS audits equity events.
The Mechanics
- Strike & safety zone: options granted at the current 409A FMV get the safe harbor; stale valuations create audit risk on cheap grants.
- RSU records: vesting dates, share counts, tax withholding, and sale receipts; the vesting clock is in the vesting guide and the transfer rules in the transfer vesting guide.
- Sale trails: the sale price, gain basis, and 1099-B forms support the capital-gains position (see the exercise guide and the AMT math in the AMT guide).
280G calculations use the valuation line; the parachute math is in the 280G guide. The comp archive for audits is in the records guide, and the refresher policy in the refresher guide.
Put the rule into action
Write the letter with the free Final Paycheck Demand Letter generator. The state pages carry the local payout and notice windows, and the application tracker keeps the follow-up date in writing.
Put the rule into action
The record set that survives an audit
Equity tax treatment is decided by paperwork, and the paperwork is thin at most companies. Five items carry the position:
- Grant records: grant date, share or option count, strike price, and the award agreement.
- Valuation dates: the 409A valuation date used for the grant, and the interval. Valuations refresh on a 12-month cycle, so a grant made near the end of that window is the audit risk.
- Vest events: vest dates, share counts, and the tax withholding method for RSUs.
- Exercise records: exercise date, strike, fair market value at exercise, and the spread for AMT purposes.
- Sale records: sale date, proceeds, and basis, tied to the 1099-B.
Collect them before your last day. After you leave, the portal access is gone and the same records arrive as summaries. The equity vesting entry explains the vest events, and the post-exit exercise guide covers the deadline that starts when you leave.
Valuation timing and the safe harbor
A grant priced at the current 409A fair market value gets the safe-harbor treatment; a stale valuation on a cheap grant is where audits start. Two dates decide it: the valuation date and the grant date.
Ask, in writing, for the valuation date that supported your grant price, and whether a new valuation has been completed since. If a grant was priced against a valuation that had aged out, the tax consequence can land on you rather than the company, so the question belongs in your exit paperwork, not in a later notice.
The same valuation line feeds the change-of-control math, because the parachute calculation uses compensation history and the deal price. See the 280G guide, and run your own schedule in the vesting calculator.
What to ask for before your last day
- The award agreement for every grant, including the post-termination exercise window.
- The 409A valuation date used for each grant price.
- A statement of vested and unvested positions as of your last day.
- For RSUs: the vest dates, share counts, and the withholding method used.
- For options: the exercise history with strike and fair market value at exercise.
Send one letter with those five asks. If equity is part of your exit, the severance conversation should not sign away a position you have not yet documented: read severance negotiation scripts before agreeing to any release language about awards.
Scripts and wording
"Please provide, in writing: the award agreements for all my grants, the 409A valuation date that supported each grant price, my vested and unvested positions as of [last day], the post-termination exercise window with its deadline, and the RSU vest and withholding records for this year."
Five asks, one letter, before access ends. An equity position you cannot document is a position you cannot defend.
The 409A record set
| Record | What it proves | Keep |
|---|
| Grant date and strike price | The option was priced at the 409A fair market value | Grant letter and board approval |
|---|
| 409A valuation reports | The safe-harbor valuation was current | Each valuation with its date |
|---|
| RSU vesting and sale records | Vesting dates, shares, withholding, and sale receipts | Plan statements and 1099-B |
|---|
| Plan terms | Vesting schedule, exercise window, and forfeiture rules | The signed plan document |
|---|
For the current text behind these numbers, start with the California job exit rules page and the New York job exit rules page, along with the Severance Package Negotiation Letter generator, the 401(k) Vesting Schedule definition, and the equity tax trails guide hub. Those sources state the rule in full; this page only points at them.
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Frequently Asked Questions
- Why does the 409A valuation date matter?
- It supports the strike price of your grant. A grant priced against a valuation that aged past its 12-month window creates audit risk on the tax treatment, so the valuation date and the grant date are facts you want in writing. See the AMT options guide for the exercise consequence.
- Which equity records must I keep after leaving?
- Grant agreements, valuation dates, vest and exercise records with fair market values, sale records and the 1099-B. Those five sets answer most questions about the tax year and basis. Collect them before your last day, because portal access disappears first. The equity vesting entry explains the vest events.
- What happens to unvested equity when I leave?
- Usually forfeiture, unless the plan accelerates on a change of control or another trigger. Read the acceleration clause and the post-termination exercise window before your last day; the window sets your tax year. The vesting calculator prints your dates, and post-exit exercise covers the deadline.
- Should I settle equity paperwork before signing severance?
- Yes. A release can cover award claims, so document the vested position, the exercise window and the valuation dates before you sign. Read severance scripts and the release-of-claims entry before agreeing to award-related language.
The valuation date, the exercise window, and the reporting lines decide your tax year, and the separation side of the file ? final wages, PTO payout, and the pay window ? is a state rule. Confirm the state rule with the agency named on the state rule pages, keep the award agreement, grant date, and vesting schedule in one dated file, and run the vested and unvested split in the vesting calculator before you sign a package that touches your options.
Sources (official record — verify before filing)
IRS — tax guidance