What Is an 83(b) Election and Who Should File?

An 83(b) election is a short IRS filing that lets you pay income tax on restricted stock when you receive it rather than when it vests. By locking in today’s value as your taxable amount, the election converts future appreciation from ordinary compensation income into capital gain. You have 30 days from the grant to file, no extensions, and the tax you pay is not refundable if you later leave or the stock drops. For founders and early startup employees whose shares are worth pennies, filing is often close to a no-brainer. For anyone receiving stock that already has real value, it’s a real bet.

How Restricted Stock Is Taxed Without the Election

When your employer grants you restricted stock as compensation, the IRS doesn’t treat it as fully yours yet. The stock carries a “substantial risk of forfeiture” because keeping it depends on your continuing to work through the vesting schedule. Until vesting, there’s no tax.¹

The bill comes at vesting. The full value of the shares on the vesting date, minus anything you paid, hits your W-2 as ordinary income. Your employer withholds federal income tax, Social Security, and Medicare on that amount. If the stock was worth $1 when granted and $25 when it vests, you owe ordinary income tax on the full $24 spread, at rates topping out at 37% for 2026. And you owe it whether or not you sell any shares to raise the cash.

What Filing an 83(b) Election Changes

Filing flips the timing. You tell the IRS to tax you now, on the current value of the stock, before it has vested. The taxable amount is the fair market value on the grant date minus anything you paid for the shares.¹

That grant-date value becomes your cost basis. Every dollar of appreciation above it is no longer wage income. It’s a capital gain, taxed only when you sell, and if you hold for more than a year from the grant date, at long-term rates that top out at 20% for 2026 rather than 37%.²

The election also starts your holding period on the grant date rather than at vesting. Without it, the one-year clock for long-term treatment restarts with each vesting tranche. High earners should also factor in the 3.8% net investment income tax on capital gains once modified adjusted gross income crosses $200,000 single or $250,000 joint, but even the combined 23.8% is well below ordinary rates.³

A Worked Example

Your startup grants you 10,000 shares of restricted stock worth $0.50 each, vesting over four years, and you pay nothing. Without the election, no tax at grant. Four years later the shares are worth $20 and vest. The IRS treats the full $200,000 as ordinary income, taxed at rates up to 37%.

With an 83(b) election filed within 30 days of the grant, you recognize $5,000 of ordinary income immediately: 10,000 shares at $0.50. When you later sell at $20, the $195,000 gain is long-term capital gain taxed at no more than 20%, plus the 3.8% surtax if it applies. Savings in a scenario like this can easily exceed $30,000.

Who Should File

Founders Buying Shares at Nominal Value

For founders who purchase restricted stock at incorporation, the election is close to a formality. When you buy shares for $0.001 each and fair market value is also $0.001, the taxable spread is zero. You owe nothing at filing, and every penny of subsequent growth becomes capital gain rather than compensation. Skipping the election here means volunteering to pay ordinary rates on years of company growth for no reason.

Early Employees With Low-Value Stock

The math works best when the current spread between fair market value and your purchase price is small. An engineer at a Series A startup with stock worth $0.50 per share faces a manageable upfront bill. The same engineer at a Series D company with stock worth $15 per share faces a real cost, and the calculus shifts. The lower the current value, the less you risk and the more appreciation you shelter.

Early-Exercised Stock Options

Some companies let employees exercise options before vesting. When you early-exercise, you receive actual restricted shares, and those shares fall under Section 83 just like a direct grant. Filing on early-exercised shares locks in the spread between the exercise price and fair market value at exercise. If that spread is small or zero, the upfront tax is minimal and all future growth shifts to capital gains treatment.

When It Doesn’t Make Sense

RSUs Are Not Eligible

Restricted stock units are not restricted stock, and the 83(b) election does not apply to them. The distinction is mechanical. Restricted stock puts actual shares in your hands at grant, subject to forfeiture if you leave. RSUs are a promise to deliver shares later, once vesting conditions are met. Because no property changes hands at grant, there’s nothing for the election to accelerate. Section 83 only applies when property is actually transferred.¹

If your equity comes as RSUs, which is standard at most publicly traded tech companies, this election is simply unavailable. You’ll owe ordinary income tax on each tranche as it vests.

Stock That Already Has Real Value

The election requires you to pay tax now on today’s value. Receive a grant at a late-stage private company where fair market value is $30 per share, and filing means writing a check today, with no guarantee the stock will keep climbing or that you’ll stay long enough to vest. The higher the current value, the larger the downside if things go the wrong way.

Uncertain Vesting or Job Stability

The election is a bet on two things: that you’ll stay through vesting, and that the stock will appreciate. If you’re shaky on either, the upfront payment becomes a gamble with cash the IRS will not return.

How to File Within 30 Days

The deadline is absolute. The election must reach the IRS no later than 30 days after the property is transferred to you.¹ The IRS has never granted a general extension. A one-time exception was made during the COVID-19 pandemic in 2020 for elections due between April and July of that year, and that relief has not been repeated. Miss the window by a day and you’re stuck with default treatment.

You can file with a written statement containing the required information, or you can use IRS Form 15620, which the agency released in early 2025 to standardize the process. The form is optional but reduces the risk of leaving something out.⁴

Either way, the filing must include:

Your name, address, and Social Security number
A description of the property: number of shares, class of stock, and the issuing company
The transfer date
The vesting conditions that create the forfeiture risk
The fair market value on the transfer date
The amount you paid for the stock, if anything

File with the IRS service center where you file your tax return, and give a copy to your employer. The IRS dropped the requirement to attach a copy to your Form 1040, so the current process is a two-step filing: IRS plus employer.⁵

Prove You Filed on Time

The most common procedural problem isn’t the content. It’s proving timely filing. Send the election via USPS certified mail with return receipt requested. The certified mail receipt with its postmark is your legal proof. Keep the receipt, the return card, and a signed copy of the election somewhere you can find them years later. If the IRS ever claims you missed the deadline, that postmark is your only defense.

What Happens If You Leave Before Vesting

This is the real cost of getting it wrong. When you forfeit unvested stock after filing an 83(b) election, you don’t get back the income tax you already paid. The statute explicitly bars a deduction for the forfeiture itself.¹

The only deduction available is for money you actually paid for the shares. Under the Treasury regulations, forfeiture is treated as a sale where your loss equals what you paid minus what the company returns to you. If the stock is a capital asset, that loss is a capital loss, subject to the standard $3,000 annual deduction against ordinary income.⁵

Concretely: receive 10,000 shares for free, recognize $5,000 in ordinary income on your election, pay roughly $1,100 in federal tax, then leave before vesting. That $1,100 is gone. You paid nothing for the shares, so your capital loss is zero. If instead you paid $5,000 for the shares equal to fair market value, your ordinary income was zero but forfeiture generates a $5,000 capital loss. Deal structure determines which kind of hit you take.

Filing Is Effectively Irrevocable

For all practical purposes, you cannot undo an 83(b) election. The IRS has permitted revocation in a handful of cases involving a genuine mistake of fact, such as a materially incorrect fair market value, but these are rare enough that you should treat the filing as permanent. Resolve any uncertainty before the 30-day window closes. You cannot walk this back later because the stock dropped or your plans changed.

Two Situations That Look Similar But Aren’t

LLC Profits Interests

If your equity is an interest in an LLC or partnership rather than corporate stock, different rules apply. A profits interest, which entitles you only to a share of future gains rather than current asset value, generally isn’t taxed at grant or vesting under IRS safe harbor rules, provided the company and recipient follow specific reporting requirements. You don’t need to file an 83(b) election in that case, because the IRS already treats you as the owner from the grant date.⁶ A capital interest in an LLC, which conveys a share of existing asset value, is closer to restricted stock and may warrant an election. If you’re receiving an LLC interest, the type matters enormously.

Section 83(i) Deferrals

Employees of certain private companies have a separate option under Section 83(i) that runs in the opposite direction. Instead of accelerating income into the grant year, Section 83(i) lets qualifying employees defer tax on vested stock for up to five years, easing the problem of owing tax on shares you can’t sell.⁷ The eligibility requirements are narrow, the election must be made within 30 days of vesting, and the income is eventually taxed as ordinary income when deferral ends. It’s not a substitute for an 83(b) election, just a different tool for a different problem.

1
Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services
2
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
3
Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
4
Internal Revenue Service. Update to the 2024 Publication 525 for Section 83(b) Election
5
GovInfo. 26 CFR 1.83-2 – Election to Include in Gross Income in Year of Transfer
6
Internal Revenue Service. Revenue Procedure 2001-43
7
Internal Revenue Service. Notice 2018-97