What a tender offer is
In a tender offer, the company or an outside investor offers to buy shares from employees at a set price, before any IPO. It's often the first real chance to turn equity into cash.
How each type is taxed
Shares you already own
If you're selling common stock you bought or got from exercising options, the gain over your basis is a capital gain. It's long-term if held over one year.
Exercise-and-sell of options
Many tenders let you exercise and sell in one step.
- NSOs: the spread is wages, with withholding.
- ISOs: exercising and selling right away is a disqualifying disposition. The spread is ordinary income, with no Social Security or Medicare and often no withholding.
RSUs
If the tender includes RSUs, the company usually settles them first, as wages with withholding, then buys the shares.
The compensation trap
If the company itself buys shares at a price above fair market value, the IRS can treat the excess as compensation rather than capital gain. Investor-led tenders at a negotiated price usually avoid this, but the offer documents should say how the payment will be reported. Read them.
Withholding
- Capital gain portions: no withholding. You make estimated payments.
- Compensation portions: withheld like a bonus, usually 22% federal.
Some company-run tenders pay through payroll. See No withholding on stock sales.
Deciding how much to sell
- A tender is one of the few chances to diversify before an IPO.
- Selling some shares can fund the cost of exercising the rest.
- Tenders often come with limits, such as a percentage of vested holdings.
Model it
Enter the tender as your event in the calculator to see taxes and after-tax proceeds.
General information, not tax advice.
Frequently asked questions
How are tender offer gains taxed for employees?
If you are selling common stock you already own, the gain over your cost basis is taxed as a capital gain. If you have held these shares for more than one year, the gain qualifies as long-term capital gain. Keep in mind that capital gains are not subject to tax withholding, so you will need to make estimated tax payments.
What happens if I sell NSOs in a tender offer?
When you exercise and sell NSOs in a tender offer, the spread between the exercise price and the sale price is treated as wages. This compensation portion is subject to tax withholding, similar to a bonus payment. Your employer will typically withhold taxes at a rate of 22 percent for federal income tax purposes.
Are ISOs taxed differently in a tender offer?
Exercising and selling ISOs immediately through a tender offer is considered a disqualifying disposition. The spread is taxed as ordinary income rather than a capital gain. While this income is not subject to Social Security or Medicare taxes and often has no federal tax withholding, it is still reported as taxable income.
Will the IRS tax my tender offer sale as compensation?
If the company itself buys your shares at a price higher than the fair market value, the IRS may classify that excess amount as compensation. You should carefully review your offer documents to understand how the company plans to report the payment. Investor-led tenders at negotiated prices generally avoid this specific classification as compensation.
Official sources (for the detail-minded)
- IRC Section 1001How gain or loss on a sale is figured
- IRC Section 1222Short- vs long-term holding periods
- IRC Section 83When a payment for stock is really pay for work
- IRC Section 421(b)Selling ISO shares early (disqualifying disposition)
- IRC Section 302When a company buying back its own stock is treated as a sale
Run your own numbers
See your tax, take-home, and what to set aside. Free, and nothing is stored.
Keep reading
Buying Pre-IPO Shares on the Private Market: The Tax Basics
The IPO isn't a tax event for you. What matters is your purchase price, your purchase date and when you sell.
RSU and Stock Option Taxes at IPO: What Employees Owe
What happens to your RSUs, options, and shares when your company goes public, why the 22% withholding usually falls short, and how to plan around the lockup.
Double-Trigger RSUs at a Private Company: What Happens at IPO
Years of vested RSUs can become taxable on a single day, often before you're allowed to sell. Here's how to prepare.
IPO Lockups: How to Plan Your First Sale
When the lockup ends, you can finally sell. Decide before that day which shares to sell, how the gains are taxed, and how you'll pay the tax.
Estimates only. Not tax, legal, or investment advice. See our methodology