2026 Midterm Election: Could the Stock Buyback Tax Jump to 4%?

If you own shares of companies that buy back their own stock, a Democratic proposal could make those buybacks more expensive. Companies repurchase shares to return cash to investors, which reduces the number of shares outstanding and can increase the portion of earnings attributed to each remaining share. The Stock Buyback Accountability Act of 2026 would raise the federal excise tax on stock repurchases. Companies pay the tax, not shareholders, but a higher rate could change how they return cash to investors.

A financial advisor can help you assess how a higher buyback tax could affect the dividends paid by the companies you own.

How the Buyback Tax Works Today

The Inflation Reduction Act created a 1% excise tax on stock repurchases by publicly traded U.S. corporations, beginning in 2023. ¹ It’s based on the value of shares a company buys back during the year, minus the value of new stock it issues, including some shares given to employees. Companies that repurchase no more than $1 million a year are exempt, and other exceptions apply to certain reorganizations.

Raising the rate to 4% would quadruple what companies owe on the same buybacks. The table multiplies three levels of net buybacks by each rate, and the added tax is the difference, which works out to 3% of the buyback amount:

A company with $10 billion in net buybacks would owe $100 million today ($10 billion × 1%) and $400 million under the proposal ($10 billion × 4%), an extra $300 million. That added cost would come from the company, not directly from your brokerage account.

What the 4% Proposal Would Change

Democratic Senator Chuck Schumer of New York introduced the Stock Buyback Accountability Act in June with fellow Democratic Senators Ron Wyden of Oregon and Elizabeth Warren of Massachusetts. The bill would raise the federal excise tax on corporate stock buybacks from 1% to 4%. ²

The proposed legislation would also prevent companies from using certain stock awards to executives and other highly paid employees to reduce the value of buybacks subject to the tax.

“Every time Republicans sweep an election they shower corporations with new tax breaks, and then corporations shower their wealthy shareholders and executives with new stock buybacks,” said Senator Wyden. “We need to dial up the tax on these buybacks, and if corporations decide they’re better off investing in workers and long-term growth, that’s a great outcome.”

Republican Senator Mike Crapo of Idaho opposed President Joe Biden’s 2024 budget proposal, which included raising the buyback tax from 1% to 4%. His office said “taxing stock buybacks artificially hampers business decisions about how best to use funds,” which could harm Americans with 401(k)s and IRAs, as well as the stock market. ³

“Quadrupling the partisan stock buyback excise tax would needlessly harm Americans who save, invest or participate in retirement plans,” the statement said.

Republicans, including President Trump, have also supported restrictions on share repurchases by defense contractors. ⁴ Those limits, however, would apply to one industry, while the proposed 4% tax would cover a broader range of publicly traded companies.

The U.S. Chamber of Commerce opposed the defense contractor restrictions in a July letter, saying they “would harm millions of American retirees and other investors” by limiting how companies return cash to shareholders. ⁵ The letter addressed those restrictions, not the 4% tax proposal.

What the 4% Proposal Could Mean for Your Portfolio

Raising the buyback tax to 4% wouldn’t cut your stock returns by three percentage points. The company pays the tax, and how it responds determines the effect on you. Some companies might repurchase fewer shares and shift some cash toward dividends, while others could reinvest more in the business or simply pay the higher tax and keep buying back stock. Each choice could change your investment gains and, in some cases, what you owe the IRS. The table below compares how these choices affect shareholders and when you could owe taxes:

In a brokerage account, bigger dividends generally add to taxable income every year, while repurchases and reinvestment create no bill until you sell. Inside an IRA or 401(k), neither buybacks nor dividends create an annual federal income tax bill. Taxes depend instead on the account type and your eventual withdrawals.

To show how much a higher rate could cost a large company, let’s take a look at Nvidia’s buyback decisions. On September 28, the company added $150 billion to its buyback program, raising the remaining authorization to $235 billion through fiscal year 2028. Nvidia called it the largest authorization increase in history. ⁶

A company isn’t required to use its full authorization, and the taxable amount could be lower after adjustments. If the full $150 billion were taxed, the bill would be $1.5 billion at 1% and $6 billion at 4%, which is a $4.5 billion difference.

A financial advisor could help you decide whether stocks with large buyback programs are better held in your taxable account or a retirement account.

How the Buyback Tax Could Increase

Raising the federal buyback tax from 1% to 4% requires Congress to change the law. The Stock Buyback Accountability Act was formally introduced on June 16 and referred to the Senate Finance Committee. The higher rate would apply to repurchases made after the bill becomes law, under its current wording. ⁷

The November elections might affect whether Democrats pursue a similar proposal in the next Congress. Passing it would still require both chambers to approve identical legislation. Even with Democratic majorities, a Senate filibuster could block the bill unless 60 senators vote to end debate. ⁸ President Trump may also veto it, requiring a two-thirds vote in each chamber to override him. ⁹

Lawmakers could avoid the 60-vote requirement by including the increase in a tax bill that qualifies for budget reconciliation. ¹⁰ This process allows the Senate to pass certain tax and spending measures with a simple majority. It does not remove the need for House approval or prevent a presidential veto.

The bill would apply the 4% rate to buybacks after it becomes law, while earlier repurchases would remain subject to the 1% rate. ¹¹ For investors, the timing determines when companies would begin paying more to repurchase shares. This could affect how much cash they have for future buybacks, dividends or business investment. Congress may also change the start date before passing the legislation.

How Buyback Tax Proposals Have Changed Over Time

The 4% bill is the latest congressional proposal to raise the excise tax on stock repurchases since 2023. The timeline below shows the changes that became law and those that stalled:

President Joe Biden’s fiscal year 2024 budget proposed a 4% rate to reduce the tax advantage of buybacks over dividends and raise federal revenue. The current bill proposes the same rate through legislation, with additional restrictions on stock awards used to offset taxable repurchases.

Bottom Line

The buyback tax remains 1% unless Congress changes the law. A 4% rate would make repurchases more expensive for companies without imposing a direct 4% tax on your investments. The effect on your investment portfolio would depend on whether companies buy back fewer shares, pay larger dividends or invest more in their businesses.

Investment Planning Tips

• A financial advisor can help you compare how an increase in the buyback tax could affect your returns and taxes across brokerage accounts, IRAs and 401(k)s. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If a higher buyback tax changes how the companies you own split cash between share repurchases and dividend payouts, diversifying your portfolio could help limit the effect on your returns. Here’s a roundup of 13 investments to consider when diversifying your holdings.

Photo credit: ©iStock.com/Anamarija Mrkic, ©iStock.com/Andrii Dodonov