83(b) Election

Quick Definition

An 83(b) election is a tax filing under IRC Section 83(b) that lets you pay ordinary income tax on restricted stock at its grant-date value instead of its vesting-date value. Once filed, all future appreciation qualifies for long-term capital gains treatment instead of ordinary income tax.

What It Means

When a company grants you restricted stock subject to vesting, the IRS default rule taxes each tranche as ordinary income at its fair market value on the day it vests. If the stock has appreciated significantly by then, the tax bill can be enormous.

The 83(b) election flips that default. You tell the IRS: tax me now, at today's value, on the full grant. After that, vesting events trigger no additional ordinary income. All future appreciation becomes capital gain, taxed at preferential long-term rates when you eventually sell.

This matters most at early-stage startups where founders and early employees receive stock worth fractions of a penny per share. Paying tax on $100 of grant-date value today saves hundreds of thousands in ordinary income tax if the company succeeds.

How It Works

The Mechanics

Section 83 of the Internal Revenue Code governs property transferred in connection with services. Stock subject to vesting is considered "subject to a substantial risk of forfeiture," meaning the IRS waits to tax it until vesting occurs. Section 83(b) lets you override that wait.

When you file the election:

1. You report the spread between fair market value and what you paid as ordinary income on the grant date
2. Each vesting tranche triggers no additional income tax
3. The long-term capital gains holding period starts at grant, not at each vesting event
4. When you sell, all appreciation above the grant-date value is taxed at long-term capital gains rates (typically 20% federal, plus 3.8% net investment income tax for high earners)

The 30-Day Deadline

The election must be filed within 30 calendar days of the transfer date. The transfer date is the date the stock is issued to you, not the date you signed your offer letter or the date vesting begins.

There are no extensions. No waivers. No "reasonable cause" relief. The IRS has held this deadline strictly in every documented case. If you miss it, the election is gone forever.

How to File

The IRS introduced Form 15620 in late 2024 as the official standardized form for 83(b) elections. You can use Form 15620 or a self-drafted letter containing the same information.

Filing steps:

1. Complete Form 15620 or a written election statement with your name, address, SSN, property description, transfer date, tax year, restrictions, fair market value at transfer, amount paid, and the taxable spread
2. Send to the IRS Service Center where you file your federal return
3. Use USPS Certified Mail with Return Receipt (the postmark controls timeliness)
4. Provide a copy to your employer
5. Keep a copy for your records

The IRS removed the requirement to attach a copy to your tax return for elections made after July 1, 2016, but many CPAs still recommend attaching it for the paper trail.

Which Equity Types Qualify

This is a common source of confusion. Recruiters sometimes tell new hires to "file an 83(b) for your RSUs." That is impossible. Restricted stock awards and early-exercised stock options qualify. RSUs do not.

Real-World Examples

Example 1: Founder Stock at Near-Zero Value

A founder receives 4,000,000 shares at $0.0001/share (total FMV: $400). She paid $400 for the shares. The taxable spread at grant is $0.

The founder pays nothing at grant because the spread is zero. Every dollar of appreciation becomes capital gain instead of ordinary income.

Example 2: Early Employee with Moderate Grant Value

Sarah receives 100,000 shares at $0.001/share (total value: $100). The stock vests monthly over 4 years.

Without 83(b) election:

With 83(b) election:

In this specific case, the total tax is higher with the 83(b) because the absolute gain is so large that the capital gains tax on the full appreciation exceeds the ordinary income tax that would have been paid incrementally. The election becomes clearly advantageous when the stock appreciates moderately, when you are in a high tax bracket, or when an IPO or acquisition lets you sell and lock in long-term capital gains rates on all appreciation.

The QSBS Connection

If your company qualifies as a C corporation with under $75 million in gross assets at the time you receive your shares (a threshold expanded by the One Big Beautiful Bill Act for stock acquired after July 4, 2025), your shares may qualify as Qualified Small Business Stock under Section 1202. QSBS can exclude up to $15 million of gain from federal tax, or 10 times your basis, whichever is greater.

Without an 83(b) election, the QSBS holding clock arguably restarts each time a tranche vests, because each tranche is treated as a fresh acquisition. With a timely 83(b), the clock starts on the entire grant on day one. For a founder, that can be the difference between qualifying for QSBS exclusion well before a typical exit window and missing it entirely.

When 83(b) Does NOT Make Sense

For founder stock at formation, the grant value is typically near zero. The election costs nothing and protects against future ordinary income tax. In that scenario, filing is almost always the right call.

Key Points to Remember

• The 30-day deadline is absolute. No extensions, no waivers, no do-overs
• 83(b) converts future ordinary income into capital gains, saving up to 17 percentage points federal
• Most valuable when grant price is very low relative to expected future value
• If stock never vests or the company fails, tax paid at grant is not recoverable
• Use Form 15620 or a qualifying letter, file via certified mail, and keep all proof
• The election starts both the long-term capital gains clock and the QSBS holding clock at grant
• Standard practice: all startup founders and early employees receiving restricted stock at low values should file

Common Mistakes to Avoid

• Missing the 30-day window: This is a one-way door. Set a calendar reminder the day you receive restricted stock. The transfer date starts the clock, not the day your lawyer gets around to it.
• Filing for RSUs: RSUs are not property. There is nothing to elect on. If a recruiter tells you to file an 83(b) for RSUs, they are wrong.
• Not considering the downside: If you early-exercise options with a large spread between strike price and FMV, you pay significant upfront tax. If the company fails, that tax money is gone.
• Losing the proof of filing: The certified mail receipt and return receipt are your only evidence of timely filing. Keep them permanently.
• Waiting to involve a CPA: By the time a wealth advisor or CPA reviews the paperwork, the 30-day window may already be closed. Engage professionals immediately upon grant.

Frequently Asked Questions

Q: Does the 83(b) election apply to stock options? A: The standard 83(b) applies to restricted stock awards and early-exercised options where actual shares are transferred subject to vesting. Unexercised stock options that you have not yet exercised do not qualify. When you early-exercise unvested NSOs or ISOs, the 83(b) election is available and usually recommended. Consult a tax advisor for option-specific guidance.

Q: What if the stock is worth nothing at grant? Should I still file? A: Yes. If the stock is worth $0 or near-$0 at grant, the 83(b) election costs you nothing in tax today but protects all future appreciation from being taxed as ordinary income at vesting. There is no downside to filing in this scenario.

Q: Can I make an 83(b) election for RSUs? A: No. RSUs are contractual rights, not property. Section 83(b) does not apply. RSUs are taxed as ordinary income upon delivery of the shares, which typically occurs at vesting. This is why actual restricted stock grants can be preferable to RSUs for tax planning.

Q: What happens if I file the election and then leave the company before vesting? A: You forfeit the unvested shares back to the company, usually for what you paid. The tax you already paid on the grant-date value is not refundable. This is the main downside risk of the election.

Q: Can I electronically file the 83(b) election? A: As of 2026, Form 15620 can be filed through approved e-file software, which preserves a timestamp. You can also still mail it via USPS Certified Mail with Return Receipt. Either method works, but keep your proof of timely filing regardless of which path you choose.