Form 7208 Explained: the 1% Stock Buyback Excise Tax
What the stock repurchase tax is
The Inflation Reduction Act of 2022 added a new excise tax under IRC § 4501 equal to 1% of the fair market value (FMV) of stock that a covered corporation repurchases during its tax year. It applies to repurchases occurring after December 31, 2022. It is not an income tax — it is a federal excise tax, which is why it lands on Form 720.
Who is a “covered corporation”?
A covered corporation is any domestic corporation whose stock is traded on an established securities market, plus certain U.S. affiliates of publicly traded foreign parents. Privately held companies that are not traded on an established securities market are generally not subject to the tax. If a covered corporation has no repurchases (or economically similar transactions) in a year, no Form 7208 is required for that year.
How the 1% is figured — the netting rule
You do not pay 1% on gross buybacks. Form 7208 builds a net base: the FMV of stock repurchased, reduced by stock issued or provided to employees for services, contributions of stock to employer retirement/ESOP plans, and statutory exceptions under § 4501(e). The 1% applies to what remains.
Net base: $50,000,000 − $8,000,000 − $2,000,000 = $40,000,000.
Excise tax: $40,000,000 × 1% = $400,000, reported on Form 720, IRS No. 150.
The $1 million de minimis & exceptions
If the total FMV of stock repurchased during the tax year is $1,000,000 or less, no stock repurchase excise tax is due. Beyond the de minimis, § 4501(e) excludes repurchases that are part of a tax-free reorganization, treated as a dividend, made by a RIC or REIT, or where the stock is contributed to an ESOP or retirement plan.
How Form 7208 is filed
The tax is reported once a year. You compute it on Form 7208 (Parts I–IV), carry the 1% result to IRS No. 150 on Form 720, and attach Form 7208 to that return. It is filed on the Form 720 for the first full quarter after your tax year ends — for a calendar-year corporation, the Q1 return due April 30. See the full timing in our Form 7208 due date guide, or the complete walkthrough on the stock repurchase excise tax page.
FAQ
What is Form 7208?▼
Form 7208 is the IRS form used to figure the 1% stock repurchase excise tax under IRC § 4501, created by the Inflation Reduction Act of 2022. You compute the tax on Form 7208 and report it on Form 720 as IRS No. 150. It applies to stock repurchases occurring after December 31, 2022.
Who has to file Form 7208?▼
Covered corporations — any domestic corporation whose stock is traded on an established securities market, plus certain U.S. affiliates of publicly traded foreign parents. Privately held companies that are not traded on an established securities market are generally not subject to the tax. No form is required for a year with no repurchases.
How is the 1% calculated — do I pay on every buyback?▼
No. The tax applies to a net base. Start with the fair market value of stock repurchased during the year, then subtract stock issued or provided to employees for services, contributions of stock to employer retirement/ESOP plans, and statutory exceptions under § 4501(e). The 1% rate applies to what is left.
Is there a minimum before the tax applies?▼
Yes. If the total fair market value of stock repurchased during the tax year is $1,000,000 or less, no stock repurchase excise tax is due.
File the stock repurchase tax the easy way
EasyFile720 handles the netting rule, the exceptions, and IRS No. 150 — then e-files Form 7208 with your Form 720.
Reflects the Instructions for Form 7208 and IRC § 4501. General information, not tax advice — confirm your specific facts before filing.
