Short-Term Capital Gains (STCG) Tax Rate on Equity

The short-term capital gains tax rate on equity is your ordinary federal income tax rate, which for the 2026 tax year runs from 10% to 37% depending on your total taxable income and filing status.¹ The gain stacks on top of your wages and other income before the tax is calculated, so the rate you actually pay depends on where that gain lands in the brackets. Higher-income investors may also owe an additional 3.8% Net Investment Income Tax.²

What Counts as Short-Term

A capital gain is short-term when you sell equity you have owned for one year or less.³ The clock starts the day after you buy and runs through the day you sell. Buy on March 1 and sell on March 1 the next year, and the gain is still short-term. Sell on March 2 and it becomes long-term, which is taxed at lower rates.

For publicly traded stocks, the trade date (the day your order executes) controls the holding period, not the later settlement date. A single day can change the rate you pay, so keep clean records of both trade dates.

2026 Brackets and How the Gain Stacks

Because short-term gains are ordinary income, the federal rate depends on where the gain sits inside your overall income.⁴ The brackets are progressive, so only the portion of income falling in each bracket is taxed at that bracket’s rate. For 2026, single and married-filing-jointly filers face these brackets:¹

10%: up to $12,400 single, $24,800 joint
12%: $12,401–$50,400 single, $24,801–$100,800 joint
22%: $50,401–$105,700 single, $100,801–$211,400 joint
24%: $105,701–$201,775 single, $211,401–$403,550 joint
32%: $201,776–$256,225 single, $403,551–$512,450 joint
35%: $256,226–$640,600 single, $512,451–$768,700 joint
37%: over $640,600 single, over $768,700 joint

A short-term gain can push you into a higher bracket. Say you are a single filer earning $100,000 in salary, which places you in the 22% bracket. A $10,000 short-term gain fills the remaining space in that bracket first: $5,700 is taxed at 22%, and the remaining $4,300 spills into the 24% bracket. The gain itself does not have one flat rate; it fills whatever bracket space your other income leaves open.

The 3.8% Net Investment Income Tax

On top of ordinary income tax, higher earners face a 3.8% surtax on net investment income, and short-term equity gains count.² The tax kicks in when your modified adjusted gross income exceeds:

$200,000 for single or head-of-household filers
$250,000 for married couples filing jointly
$125,000 for married individuals filing separately

The 3.8% applies to the lesser of your net investment income or the amount by which MAGI exceeds the threshold. If you are single with $220,000 in MAGI and $50,000 of that comes from short-term gains, the surtax hits $20,000 (the excess over $200,000), not the full $50,000, adding $760 to your bill.

These thresholds are not indexed for inflation, so more taxpayers cross them each year.⁵ For a top-bracket investor, the combined federal rate on short-term equity gains reaches 40.8%.

Figuring the Taxable Gain

Your taxable gain is the difference between your net sale proceeds and your cost basis. Cost basis starts with the price you paid, plus any brokerage commissions or transfer fees at purchase.⁶ Buy 100 shares at $20 with a $10 commission, and your basis is $2,010. Commissions and fees paid at sale reduce your proceeds on the other side.⁷

Corporate actions change per-share basis without any action on your part. A 2-for-1 split doubles your share count and halves the per-share basis, leaving the total unchanged. Reinvested dividends add to your basis because you are buying additional shares, and each reinvestment through a dividend reinvestment plan creates a separate tax lot with its own basis and holding period.

Using Losses to Reduce the Tax

Short-term losses offset short-term gains dollar for dollar. Make $5,000 on one trade, lose $3,000 on another, and you owe tax on the $2,000 net.⁸ Short-term gains and losses net first, long-term gains and losses net separately, and the two categories then offset each other if one side is a gain and the other a loss.

If total losses exceed total gains for the year, you can deduct up to $3,000 of the excess against ordinary income ($1,500 if married filing separately).⁸ Anything left over carries forward and keeps its character: a short-term loss carries forward as short-term, a long-term loss as long-term.⁹ Carryforwards do not expire.

The Wash Sale Rule

Selling stock at a loss and buying the same or a substantially identical security within 30 days on either side of the sale disallows the loss. That is a 61-day window: 30 days before, the sale date, and 30 days after. The disallowed loss is not lost forever; it gets added to the basis of your replacement shares, deferring the benefit until you eventually sell those without triggering another wash sale. The rule also reaches contracts and options to buy substantially identical securities.¹⁰

The IRS has never published a precise definition of “substantially identical,” which leaves a gray area for ETFs tracking the same index. The safer approach during the 61-day window is to avoid any security tracking the same benchmark or representing the same underlying company.

Reporting and Paying

Every short-term equity sale must be reported, even at a loss. Sales go on Form 8949 and feed into Schedule D of Form 1040.¹¹ Your brokerage sends Form 1099-B with the proceeds and, in most cases, the cost basis. When the 1099-B shows the correct basis and no adjustments are needed, you can carry those transactions straight to Schedule D. When the broker reported the wrong basis or a wash sale disallowed part of a loss, list the transaction on Form 8949 with the adjustment code and corrected figures. Wash sales spanning multiple brokerage accounts are a common source of errors.

Estimated Tax Payments

A big short-term gain mid-year can create an underpayment problem if you wait until April. The IRS expects you to pay as you go, and owing more than $1,000 at filing can trigger a penalty. You avoid it by meeting a safe harbor: pay at least 90% of the current year’s liability through withholding and estimated payments, or at least 100% of last year’s total tax.¹² If your prior-year adjusted gross income was above $150,000, the prior-year safe harbor rises to 110%.

After a large sale, the cleanest fix is an estimated payment through IRS Direct Pay or EFTPS for the quarter in which the gain occurred. The four quarterly deadlines fall in April, June, September, and January.

State Tax on Top

Federal tax is only part of the bill. Most states also tax short-term capital gains as ordinary income, with rates that vary widely. Some states impose no income tax at all; others charge rates above 10%. A few tax long-term and short-term gains at different rates, though that is uncommon. Check your state’s rules to get the full picture of what a short-term equity sale will cost you.

1
Internal Revenue Service. Rev. Proc. 2025-32
2
Office of the Law Revision Counsel. 26 U.S.C. 1411 – Imposition of Tax
3
Office of the Law Revision Counsel. 26 U.S. Code 1222 – Other Terms Relating to Capital Gains and Losses
4
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
5
Congressional Research Service. The 3.8% Net Investment Income Tax – Overview, Data, and Policy
6
Internal Revenue Service. Publication 550, Investment Income and Expenses
7
Office of the Law Revision Counsel. 26 U.S. Code 1012 – Cost
8
Office of the Law Revision Counsel. 26 U.S. Code 1211 – Limitation on Capital Losses
9
Office of the Law Revision Counsel. 26 U.S.C. 1212 – Capital Loss Carrybacks and Carryovers
10
Office of the Law Revision Counsel. 26 U.S.C. 1091 – Loss From Wash Sales of Stock or Securities
11
Internal Revenue Service. Instructions for Form 8949
12
Office of the Law Revision Counsel. 26 U.S. Code 6654 – Failure by Individual to Pay Estimated Income Tax