1% Stock Buyback Tax Explained

The stock repurchase excise tax costs a publicly traded corporation 1% of the fair market value (FMV) of the stock it buys back, measured after a set of subtractions. FMV is simply what the shares were worth. The tax comes from section 4501, applies to repurchases after 2022, and is reported once a year on Form 720 as IRS No. 150, with Form 7208 attached. For the filing steps in one place, see our stock repurchase tax filing page.

Most summaries stop at "1% of net buybacks." The questions that actually change a company's return are narrower: is this entity a filer, is this transaction a repurchase, and which subtraction goes on which line. Those are the questions this guide answers, using the December 2025 instructions.

Which entities have to file Form 7208?

A covered corporation is the usual filer, but it isn't the only one. The instructions name three.

A specified affiliate is a corporation that another corporation owns more than 50% of, by vote or value, directly or indirectly. It also includes a partnership in which the corporation holds more than 50% of the capital or profits interests.

One group is carved out at the start. A covered corporation that is a regulated investment company (RIC), a real estate investment trust (REIT), or a non-RIC '40 Act fund does not need to file.

What counts as a stock repurchase?

A repurchase is a redemption under section 317(b), plus transactions the Treasury treats as economically similar. Line 1, column (c) of Form 7208 shows how broad that is, because each transaction must be labeled with one of these types:

• OMR: an open-market repurchase, such as a share buyback plan.
• Tender Offer: stock bought under a tender offer.
• ASR: an accelerated share repurchase agreement.
• Reorganization: a repurchase in a section 368(a)(1)(E) reorganization.
• Split-Off: stock repurchased in a split-off.
• NLF: a repurchase of a covered non-stock instrument.
• Other: any repurchase type not listed above.

Certain forfeitures and clawbacks of stock can also be treated as repurchases. "Stock" here includes treasury stock and doesn't have to be publicly traded itself, but two kinds of preferred stock are left out: preferred stock that qualifies as additional tier 1 capital, and preferred stock described in section 1504(a)(4).

How does the $1 million test work?

This is easy to misread. The $1 million test looks at line 3, the total FMV of repurchases, before any netting. It isn't a test of the net amount.

• Line 3 is $1 million or less: complete Part I, then attach the form to Form 720. You stop there.
• Line 3 is more than $1 million: continue to Part II and on through the form, even if heavy stock issuance will bring the net down to almost nothing.

So a made-up company that repurchased $1,200,000 of stock and issued $1,000,000 to employees doesn't get out through the test. It continues, its line 10 is $200,000, and its tax is $2,000. Note the form is still attached in the under-$1 million case. The instructions tell you to attach it, not skip it.

How is the 1% figured? A worked netting example

Form 7208 subtracts three things from line 3. Part II holds the exceptions on lines 5a through 5e. Part III holds contributions to employer-sponsored retirement plans. Part IV holds stock issued or provided.

• Line 5a: stock repurchased in a split-off in exchange for property section 355 lets the shareholder receive tax free.
• Line 5b: repurchases treated as a dividend, if you have sufficient evidence the shareholder treats it as a dividend on their federal income tax return. Don't attach that evidence.
• Line 5d: stock repurchased by a dealer in securities in the ordinary course of business. Line 5c is reserved.
• Line 8: stock contributed to a retirement plan, including an ESOP. A contribution counts for the tax year if made by the filing deadline of the Form 720 that the Form 7208 is attached to.
• Lines 9a to 9c: stock issued or provided to employees and other service providers, stock provided to a specified affiliate's service providers, and other stock issued. Lines 9b and 9c are entered as -0- by applicable specified affiliates and expatriated entities.

Here is a calendar-year example with invented figures for a fictional covered corporation:

The $280,000 goes on Form 720 on the line for IRS No. 150. If line 10 had come to zero or less, you would enter -0- and still attach the form to Form 720.

How the tax reaches Form 720, and filing it online

The stock repurchase tax is annual while Form 720 is quarterly, so the form goes on the return for the first full quarter after your tax year closes. A calendar-year 2026 corporation attaches it to the first quarter 2027 Form 720, due April 30, 2027. Our Form 7208 due date guide has the fiscal-year timing, and Form 7208 explained gives a shorter overview of the form.

IRS No. 150 sits in Form 720, Part II. Part II taxes other than the floor stocks tax don't require deposits and are payable with the return. Keep records that support the amounts you report, since the instructions require complete and detailed records. The Form 720 carrying the Form 7208 must be signed under penalties of perjury.

With your Form 7208 figures in hand, you can file Form 720 online with EasyFile720. It's an IRS-authorized e-file provider covering Part II categories such as IRS No. 150. Creating an account is free with no credit card needed, and you pay $39.95 when you file. The guided steps run from business details to submission, validations catch common mistakes first, and you get an electronic acknowledgment from the IRS once the return is accepted. More detail on this line is on the stock repurchase tax page.

FAQ

Sources: Instructions for Form 7208 (Rev. December 2025); Instructions for Form 720 (Rev. June 2026); Form 720 (Rev. June 2026); Pub. 510 (Rev. December 2025). General information, not tax advice. Confirm how the rules apply to you with a qualified advisor or the IRS.