When you sell company stock, your capital gains tax depends on three things:
- How long you held the shares: more than one year is long-term; one year or less is short-term.
- Your cost basis: roughly what you paid, plus any amount already taxed as compensation.
- Your total taxable income for the year: a large sale pushes most of the gain into the top bracket.
State tax and any escrow the buyer holds back then change what you actually receive, and when. The number that matters is the one that lands in your account, and you can estimate it before you sign, while the timing and terms are still open.
How are capital gains taxed when you sell company stock?
Your gain is the sale price minus your basis (IRS Topic 409). That gain is then taxed in layers:
- Federal capital gains tax, at long-term or short-term rates depending on your holding period.
- The 3.8% net investment income tax, once your modified adjusted gross income passes the threshold for your filing status. The NIIT explainer covers how it works.
- State tax, which ranges from nothing to more than 13%.
How do you know if a stock sale is short-term or long-term?
Shares you hold for more than one year produce long-term gain. Under IRS Publication 550, the holding period starts the day after you acquire the shares, so the anniversary of acquisition itself still counts as short-term.
When the clock starts depends on how you got the stock:
| Equity type | Holding period starts |
|---|---|
| RSUs | At vesting, when the shares are delivered |
| NSOs and ISOs | At exercise |
| Founder stock | At purchase with a timely 83(b) election; at vesting without one |
This is where the question of when to sell company stock gets concrete. Selling a lot a few weeks before it turns long-term can cost you the gap between ordinary rates and capital gains rates on the whole gain.
What are the 2026 tax rates for long-term vs. short-term gains?
For 2026, Rev. Proc. 2025-32 sets the federal brackets:
| Gain type | 2026 federal rate | Top rate starts above |
|---|---|---|
| Long-term | 0%, 15%, or 20% | $545,500 single, $613,700 joint (20%) |
| Short-term | Ordinary income, up to 37% | $640,600 single, $768,700 joint (37%) |
The 3.8% NIIT sits on top of either rate, so a large long-term gain is often taxed federally at 23.8%.
State tax is the widest variable:
- California taxes all capital gains as ordinary income, according to the Franchise Tax Board. The top bracket is 12.3%, plus a 1% Mental Health Services Tax on taxable income over $1 million, for 13.3% combined.
- A state with no income tax takes nothing.
The state tax calculators show the rates where you live.
How do you calculate cost basis for company stock?
Basis depends on the type of equity:
- RSUs: the fair market value of the shares at vesting, which was already taxed as wages.
- NSOs: the exercise price you paid plus the spread taxed as compensation at exercise.
- ISOs: the exercise price, for regular tax purposes.
- Founder stock: what you paid for the shares.
Qualified small business stock can change the whole model. For stock acquired after July 4, 2025, Section 1202 excludes 50%, 75%, or 100% of eligible gain after three, four, or five years. Excluded gain isn’t taxed federally at all, so check eligibility early. The QSBS exemption guide covers the tests.
The equity exit tax model: what will you actually net?
Here is one illustrative sale, layer by layer. A married couple in California sells founder stock for $10 million. They bought the shares for a nominal amount years ago, so nearly the full price is long-term gain, and their other income already puts them over the NIIT threshold.
| Layer | Approximate amount |
|---|---|
| Headline proceeds | $10,000,000 |
| Federal long-term capital gains tax (20%) | about $2,000,000 |
| NIIT (3.8%) | about $380,000 |
| California tax (13.3%) | about $1,330,000 |
| After-tax proceeds | about $6,290,000 |
| Indemnity escrow held back (10%) | $1,000,000 |
| Cash at closing, after setting aside tax | about $5,290,000 |
Escrow and earnouts add a timing problem on top of the tax:
- How much is held back: in SRS Acquiom’s 2026 deal terms study, the median indemnity escrow in deals without representations and warranties insurance was 10% of deal value.
- How long: that money can stay locked up for a year or more after closing.
- When it’s taxed: according to IRS Publication 537, money placed in escrow is generally treated as paid to you unless the escrow substantially restricts your right to it, and the installment method isn’t available for stock traded on an established market.
Depending on the deal terms, you could owe tax on escrowed money you haven’t received yet. Once the deal closes, the tax and cash checklist for a liquidity event covers the next steps.
What mistakes increase taxes when selling company stock?
Most of the costly mistakes are planning gaps:
- Selling a lot days or weeks before it turns long-term.
- Using a basis that leaves out RSU or NSO income you already paid tax on, which taxes that income twice. RSU tax withholding covers the withholding side of the same problem.
- Planning around the headline price instead of the net.
- Missing estimated tax payments in the sale year. The IRS charges an underpayment penalty when you don’t pay enough during the year, and withholding on a stock sale is often zero.
Some misses are structural and hard to fix later:
- QSBS confirmed too late. Eligibility depends on facts set when the stock was issued, so confirming it during due diligence leaves no room to repair a problem.
- Moving states after signing. Gain is generally taxed by the state you live in when you sell, and a move made after the deal is signed is difficult to defend if your ties to the old state remain.
How Nino helps you model your exit
Nino pairs AI-powered planning software with a dedicated financial planner and CPA who build the after-tax model across every grant you hold, project the sale year, and set the tax reserve before you sign. You see the federal, NIIT, state, and escrow layers for your own deal, along with the levers that can still move them.
Book a free consultation to model your exit before the terms are final. Every Advisor plan includes a 30-day money-back guarantee; see plans and pricing.