Can You Have Federal Tax Withheld When Selling Stock?

Report stock sales on Form 1040, but not as income.

You cannot have federal tax withheld when you sell stock. Withholding only applies to wages, salaries and tips from an employer to an employee. Profits from selling stock count as capital gains, which you calculate separately and pay a different rate.


The Internal Revenue Service favors a pay-as-you-go system and for that reason requires employers to withhold payroll taxes – income taxes, Social Security and Medicare – from employees' checks. Self-employed individuals must pay a quarterly estimated tax instead. However, withholding only applies to income.

Capital Gains and Losses

The IRS puts capital gains and losses in a separate category from income. Capital gains and losses are any profit or loss realized on a capital good such as a house, car, stamp collection, stocks, bonds, etc.

Tax Consequences of Selling Stocks

When you sell stock at a profit, you have realized a capital gain. At the end of the year, your broker sends you a statement reporting the gain and you report the profit -- the amount you received minus the amount you originally paid for the shares and brokerage fees -- on Schedule D of Form 1040. If you held the stock for less than a year, you pay the same rate as you do on your income, but if you sold the shares after holding them for longer than 365 days, you pay 15 percent.

Stock Options

If you have non-qualified stock options, the options count as income and your employer is required to withhold for them. Stock options are not stock; they are a contract that gives the holder the option to buy a set number of shares at a set price at a set date. Usually, the set price is lower than the market price. When you opt to buy stock using non-qualified options, the IRS and your employer treat the difference between the option price and the market price as income.