Form 4 Code F: When a Vesting-Day “Sale” Isn’t One

Form 4 Code F is the code for shares an issuer holds back to pay an insider’s tax bill when equity vests. In a Form 4 for Etsy’s Chief Accounting Officer, Merilee Buckley, a Code M row shows 2,014 common shares acquired at $0.00 on July 1, 2026. Directly below it, a Code F row shows 728 shares disposed of at $72.83. Scan only the “disposed” column and it looks like an executive selling. Read the footnote and it is a payroll event.

This post walks through that filing and a second one from SentinelOne, where the tax bill was paid by a real open-market sale. It explains how to tell the two apart and the rules that allow both. The transaction codes guide covers every code briefly; here we stay on one scenario.

Why a Vesting-Day “Sale” May Not Be a Sale

Restricted stock units (RSUs) are a promise of shares. When they vest, the employee owes income tax on the value, and the company has to withhold it. There are two common ways to fund that: the company keeps some of the new shares, or a broker sells some of them. Both show up on a Form 4, and both can look like insider selling in a raw feed. They share one feature: the insider does not choose the timing or the size of the disposal, because the tax event does.

What RSU Vesting Looks Like on a Form 4

RSUs are reported as derivative securities, so a vest has two sides. The units leave the derivative table and the common stock arrives in the non-derivative table. The Form 4 instructions define Code M as the “exercise or conversion of derivative security exempted pursuant to Rule 16b-3”. In the Etsy filing, the 2,014-share Code M row is the common-stock side, and three other Code M rows (730, 650 and 634 units) are the RSU side of separate grants, with footnotes saying the grants vest in 12 or 16 equal quarterly installments.

The price on an M row is $0.00 because nothing was bought. The form must be filed within two business days following the transaction date. The Etsy vest happened Wednesday, July 1. The federal holiday calendar lists Friday, July 3 as the observed Independence Day holiday, so if that day is not counted as a business day, the Monday, July 6 signature date falls within the two-day window.

Form 4 Code F: Shares Withheld by the Company

The Form 4 instructions define Code F as “payment of exercise price or tax liability by delivering or withholding securities incident to the receipt, exercise or vesting of a security issued in accordance with Rule 16b-3”. The SEC’s investor bulletin puts it more plainly: payment of the exercise price or tax liability using a portion of securities received from the company.

The footnote on the F row says it “represents the withholding of shares by the Issuer to satisfy the Reporting Person’s tax withholding obligations in connection with the vesting and settlement of the restricted stock units.” The withheld share count, 728 of 2,014, is about 36%. At the reported price that is roughly $53,000 of value kept by the company and sent toward taxes. Nobody bought those shares on an exchange.

Sell-to-Cover: The Code S Version

Some companies do not withhold shares. They instruct a broker to sell enough newly vested shares to cover the tax, which is called sell-to-cover. That is a genuine market sale, so it is coded S, defined in the instructions as an open market or private sale of non-derivative or derivative security.

A SentinelOne Form 4 for President and COO Barry L. Padgett shows the pattern. On August 6, 2026 it reports a single Code S sale of 9,778 Class A shares at a weighted average of $20.092, leaving 977,430 shares owned directly. The first footnote says the sale “represents an Issuer mandated sale by the Reporting Person to cover tax withholding obligations in connection with the vesting and settlement of Restricted Stock Units, and it does not represent a discretionary trade.” A second footnote says the shares sold at prices from $20.07 to $20.63 and that the filer will provide per-price detail on request.

Why the Tax Withholding Rate Drives the Share Count

The size of an F or sell-to-cover row follows from tax arithmetic. The IRS says the withholding rate on supplemental wages remains 22%, or 37% once supplemental wages paid to an employee in the calendar year exceed $1 million. Social Security, Medicare and state withholding come on top, so the share of a vest withheld often differs from 22%. Etsy’s roughly 36% is one example, not a rule, and the filing does not break out the components.

Companies can also withhold more than the minimum. SEC staff Question 209.04 says taxes paid through withholding “may exceed minimum withholding requirements” as long as the amount does not exceed the participant’s estimated federal, state, local and foreign tax obligations on the transaction. A bigger Code F row can therefore reflect a company policy choice as well as a tax bracket.

The Rules Behind It: Rule 16b-3(e), Rule 16a-1(c)(3) and the Staff View

Section 16(b) can force insiders to give back profits from matching buys and sells within six months (see our short-swing profit rule guide). Two rules keep tax withholding from tripping it. First, Rule 16b-3(e) exempts a disposition of issuer equity securities back to the issuer, other than a Discretionary Transaction, provided its terms are approved in advance under the board or shareholder methods in paragraphs (d)(1) or (d)(2). Second, Rule 16a-1(c)(3) excludes from the definition of “derivative security” rights to surrender or have a security withheld “in order to satisfy the exercise price or the tax withholding consequences of receipt, exercise or vesting.”

The staff also addressed timing in Question 223.10: adding Rule 16b-3(e) withholding rights to options granted under the six-month holding-period route does not undermine that exemption, provided the withholding rights are not exercised before the six months end. The takeaway for a reader is narrow: the exemption is why Code F rows are routine, and Section 16(b) is a separate question from what a row signals.

Rule 10b5-1 and the Eligible Sell-to-Cover Carve-Out

Many sell-to-cover sales run under a Rule 10b5-1 plan. Our 10b5-1 plan guide covers the basics, including limits on overlapping plans. The SEC’s 2022 adopting release added a modification for sell-to-cover: an insider does not lose the affirmative defense for another plan merely because a separate plan authorizes only qualified sell-to-cover sales. A plan qualifies where the agent may sell only such securities as are necessary to satisfy tax withholding obligations from vesting, and the insider does not otherwise control the timing.

The current Rule 10b5-1text carries this as the “eligible sell-to-cover transaction” language in paragraph (c)(1)(ii)(D)(3). In plain terms, regulators wrote a specific exception for tax-sized sales so they would not interfere with an insider’s separate, discretionary plan.

What Research Says About Silent Retention and Tax-Related Sales

A Columbia Law School Blue Sky Blog summary of the paper “Invested in Vested Stock: Abnormal Returns on Silently Retained Equity,” by Erik Johannesson and Seil Kim, reports that insiders more often keep vested stock than sell it. About 43% of observations involved a sale within 180 days of vesting. The authors also note that a Form 4 is generally filed on vesting only when shares are withheld or sold to cover taxes. If an insider pays the tax out of pocket, no Form 4 is filed at all.

That has a practical implication for data readers: on vesting day, the visible filings skew toward disposition rows even though the insider’s holdings are rising. The study is from 2017 and describes an earlier sample, so treat it as context for how the filings are generated, not as a forecast.

How to Read Vesting-Day Rows in Practice

1. Look for the M row first. A Code M row at a price of $0.00 on the same date marks a vest. Any F row beside it is the tax payment.
2. Check the code, then the footnote. F is withholding by the issuer. S needs the footnote to show it was a mandated sell-to-cover.
3. Compare sizes. A disposal near a third of the vested shares, as in the Etsy example, fits a tax bill. A much larger sale on the same day deserves a closer look.
4. Watch what comes after. Further Code S rows in the following days or weeks, outside the tax-sized one, are a different kind of event. Our Form 4 guide covers how to read them.
5. Check net holdings. If the position grew on the day, the filing reflects a vest minus tax, not a reduction in conviction.

The limits matter. Some companies do not describe the sale in a footnote, a mandated sale does not rule out other trades, and no single row proves intent. This is education about how a disclosure form works. It is not investment advice, and it does not predict how any stock will move.