Shares of Navan, the Palo Alto-based corporate travel and expense software company, fell 20% in their first day of trading on the Nasdaq on Oct. 30, a day after the company priced its initial public offering at $25 a share. The offering valued Navan at $6.2 billion, roughly $3 billion below its last private valuation in 2022. For employees and early shareholders, a weak debut raises a familiar and uncomfortable tax problem: income can be measured at one price while the shares are worth less by the time they can be sold.
What changed
Navan said in its pricing announcement that the offering consisted of 36,924,406 shares, 30,000,000 sold by the company and 6,924,406 by existing stockholders, and that underwriters had a 30-day option to buy up to 5,538,660 more. The stock trades under the ticker NAVN.
CNBC reported that the deal raised $923 million and priced at the midpoint of its range. The company, formerly TripActions and founded in 2015, reported trailing 12-month revenue of $613 million, up 32%, and a $38.6 million net loss on $172 million of revenue for the July quarter, according to its registration statement.
Who is affected
The tax exposure falls on people who received equity before the listing: employees holding restricted stock units, option holders and early investors. Pre-IPO RSUs commonly settle around a liquidity event. When shares are delivered, their value is taxed as wages, regardless of what happens to the price afterward. Holders who cannot or do not sell right away carry the market risk on shares whose tax cost is already fixed.
The after-tax math
IRS Publication 15 allows employers to withhold federal income tax on supplemental wages at a flat 22%. Once an employee's supplemental wages for the year exceed $1 million, the excess must be withheld at 37%. For many high earners, 22% is below their actual marginal rate.
Example, with round numbers: an employee has 8,000 RSUs that settle when the stock is valued at $25, creating $200,000 of wage income. The stock later trades at $20 and the employee sells.
| Step | Amount |
|---|---|
| Wage income at settlement (8,000 x $25) | $200,000 |
| Federal withholding at 22% | $44,000 |
| Federal tax at an assumed 35% marginal rate | $70,000 |
| Under-withholding to cover at filing | $26,000 |
| Sale proceeds (8,000 x $20) | $160,000 |
| Short-term capital loss | $40,000 |
The $40,000 loss does not undo the $70,000 of tax on the wage income dollar for dollar. Capital losses first offset capital gains, and only a limited amount can be deducted against ordinary income each year, with the rest carried forward. An employee with gains elsewhere in the portfolio can put the loss to work immediately; one without gains may use it slowly. State tax adds to the wage side of the ledger, and California's rates can make that gap larger.
The wash sale rule is the second trap. According to IRS Publication 550, a loss is disallowed if, within 30 days before or after the sale, the seller buys substantially identical stock, acquires a contract or option to buy it, or acquires it in an IRA or Roth IRA. Employees who sell NAVN at a loss and then buy shares back, or whose accounts acquire more shares in that window, may find the loss deferred rather than deductible.
Moves to discuss with your advisor
- Estimating the gap between 22% withholding and actual liability, and whether estimated payments are needed to limit underpayment exposure.
- Whether harvesting a loss on shares taxed at a higher value fits the rest of the portfolio, including gains from other holdings.
- Checking whether new vests, purchases or IRA trades fall inside the 30-day wash sale window around any loss sale.
- For option holders, how a lower share price changes the income or alternative minimum tax consequences of exercising now versus later, a question worth running with a CPA.
What to watch
First-day trading rarely settles a stock's value. Holders will be watching the end of any lock-up restrictions, the underwriters' option on additional shares and the company's first quarterly report as a public company, each of which can move the price that determines whether losses deepen or reverse.
Sources
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
