The short answer: A Section 83(b) election is a filing that tells the IRS to tax restricted stock at its value on the grant date instead of as it vests. You pay ordinary income tax up front on the value at grant, less anything you paid, and later growth is taxed as a capital gain when you sell. It must be filed within 30 days of the grant, online with Form 15620 or by mail, and it cannot be undone once the window closes.
Key Takeaways
- What it does: moves the tax on restricted stock from each vesting date to the grant date.
- Why it helps: value at grant is usually tiny, and growth after grant becomes capital gain instead of ordinary income.
- Hard deadline: 30 days from the transfer date, with no extensions.
- How to file: online through your IRS Individual Online Account using Form 15620, or by certified mail, then give a copy to the company.
- The risk: if you forfeit the shares or the company fails, the tax you paid up front is not refunded.
- Options: it does not apply to unexercised options, but it does apply to shares from an early exercise.
If you have received stock that vests over time, as a founder, an early hire or an advisor, you face a tax choice most people don’t know they have. The Section 83(b) election lets you decide when that equity is taxed: now, while it is cheap, or later, as it vests and, you hope, grows in value. Get it right and you can turn a large future income tax bill into a much smaller one. Miss the window and the choice is gone for good.
The 83(b) Election in Plain English
A Section 83(b) election is a short written statement you file with the IRS that says, in effect: “Tax me on this equity now, at its current value, rather than later as it vests.” The name comes from Section 83(b) of the Internal Revenue Code, which governs how property received in exchange for services is taxed.
The election only matters for equity that is subject to a substantial risk of forfeiture. Most commonly that means restricted stock that vests over several years, or stock the company can buy back if you leave early. Until that equity vests, the tax code normally treats it as not yet yours for tax purposes. The 83(b) election overrides that timing.
In one sentence: filing an 83(b) election means you pay ordinary income tax on the value of your restricted equity at grant, less anything you paid for it, and start the clock on long-term capital gains right away, instead of being taxed at each vesting date on whatever the equity is worth then.
It is a bet on growth. You accept a small, certain tax bill today to avoid a potentially much larger one later. When the equity rises in value, which is the whole point of joining an early-stage company, that trade usually works strongly in your favor.
If you paid full fair market value for the shares, which is common for founders at incorporation, the income at grant is zero. The election then costs nothing in tax and still fixes the timing in your favor.
How Vesting Equity Is Taxed Without an 83(b)
When you receive equity as compensation, the IRS treats its fair market value, less anything you paid, as ordinary income, the same category as your salary. The only question is when that income is recognized.
Equity that is fully vested on day one is taxed at grant. Restricted equity that vests over time is different. Because it carries a real risk of forfeiture, the default rule under Section 83(a) is that you are taxed each time a portion vests, based on its fair market value on that vesting date.
In a growing company, that is exactly when value is rising, so each vesting date can bring a larger ordinary income tax bill, even though you haven’t sold a share or received any cash. You can owe real money on paper gains you can’t yet spend.
What Gets Taxed, and When, Without an 83(b)
| Stage | Default treatment (no 83(b)) | Tax character |
|---|---|---|
| Grant date | No tax, because the shares can still be forfeited | None |
| Each vesting date | Taxed on the fair market value of the newly vested shares, less anything paid for them | Ordinary income |
| Later sale | Taxed on the gain above the value already taxed at vesting | Capital gain |
| Holding period | Starts separately for each tranche on its vesting date | Per tranche |
The practical problem: in a successful startup, your ordinary income exposure grows with the company’s valuation. The 83(b) election exists to cut that off.
How the 83(b) Flips the Tax Timing
When you make the election, you recognize the equity’s value as ordinary income at grant, when, for most founders and first employees, that value is at or near its lowest. From then on, vesting no longer triggers any additional ordinary income.
Two things change in your favor:
Future Growth Escapes Ordinary Rates
Any increase in value after the grant is not taxed as you vest. It is taxed only when you sell, and as a capital gain rather than as wages.
Your Holding Period Starts Now
The long-term capital gains holding period begins at grant for all your shares at once, not tranche by tranche at each vesting date, so long-term treatment is much easier to reach. An 83(b) election can also start the holding period for qualified small business stock (QSBS) at grant, which matters if the company qualifies.
The catch is that it cuts both ways. You pay tax up front whether or not the company succeeds, and the IRS will not refund it if the equity later becomes worthless or you forfeit it. The election is a calculated bet, which is why the numbers and the timing matter so much.
83(b) Election vs. No Election at a Glance
| With an 83(b) election | Without an election | |
|---|---|---|
| When ordinary income is taxed | Once, at grant | At each vesting date |
| Value taxed as ordinary income | Value at grant, less the price paid (often close to zero) | Value at each vesting date, which rises if the company grows |
| Tax on growth after grant | Capital gain when you sell | Ordinary income until vesting, then capital gain |
| Holding period starts | At grant, for all shares | At vesting, tranche by tranche |
| If you leave or the company fails | Tax already paid is not refunded | Little or no tax paid on unvested shares |
| Cash needed before a sale | Tax at grant only | Tax at every vesting date, even with no liquidity |
A Side-by-Side Worked Example
Maya is a co-founder who receives 800,000 shares of restricted stock vesting over four years and pays nothing for them. At grant, an independent valuation puts each share at $0.002, so her award is worth $1,600. Four years later the company is acquired at $3.00 a share, so her shares are worth $2.4 million. Here is how the two paths compare. The rates are illustrative; actual brackets vary.
Path A: She Files an 83(b) Election
| Step | Calculation | Tax |
|---|---|---|
| Income at grant | 800,000 × $0.002 | $1,600 |
| Ordinary tax at about 37% | About $592 | |
| Tax at vesting dates | $0 | |
| Gain on sale | $2,400,000 less $1,600 = $2,398,400, long-term | About $479,680 at 20% |
| Total tax | About $480,272 |
Most of her tax is at the lower long-term capital gains rate.
Path B: She Does Nothing
| Step | Calculation | Tax |
|---|---|---|
| Value taxed at vesting dates | Total across four years | $900,000 |
| Ordinary tax at about 37% | About $333,000 | |
| Gain on sale | $2,400,000 less $900,000 = $1,500,000, long-term | About $300,000 |
Much of this tax is at high ordinary rates and is owed during the vesting years, before any sale gives her cash to pay it.
In this scenario the 83(b) election saves Maya roughly $150,000 and spares her from paying tax on illiquid paper gains while she vests. When value is low at grant and expected to rise, electing early is powerful. The reverse also holds: if Maya leaves before vesting and forfeits her shares, the $592 she paid up front is lost, and if the company fails after she vests, she can only claim a capital loss on her $1,600 basis. Under Path B she would have paid little or nothing.
Note: these figures are simplified to show the mechanics. Real outcomes depend on your tax bracket, state taxes, the 3.8% net investment income tax, the holding period actually achieved, and how defensible the grant-date valuation is. Model your own situation with a qualified advisor.
Who Should and Shouldn't File
The election is not right for everyone. It rewards a low grant-date value and expected growth, and it punishes the opposite. Use this as a starting filter, not a final answer.
Strong Candidates
- Founders receiving restricted stock at incorporation, when value is near zero
- Early employees granted restricted stock while the company is still small
- Employees who early exercise stock options before they vest
- Anyone confident the equity’s value will rise meaningfully over the vesting period
- Recipients whose tax at grant is small enough to pay comfortably out of pocket
Think Twice If
- The grant-date value is already high, making the up-front tax bill painful
- You may leave before vesting, since you would have paid tax on shares you never keep
- The company’s prospects are uncertain or likely to decline
- You hold unexercised stock options, because 83(b) does not apply to them
Not sure what your shares are worth at grant?
How to File Your 83(b) Election, Step by Step
The most important rule: the election must be filed within 30 days of the date the equity is transferred to you. Days are calendar days, and the IRS has no authority to extend the deadline. Treat it as fixed.
1. Prepare the Election
Use IRS Form 15620 or your own written statement. It must include your name, address and taxpayer identification number; a description of the property; the date of transfer and the tax year; the nature of the restrictions; the fair market value at transfer; any amount you paid; a statement that you are electing under Section 83(b); and a statement that you have given copies to the required parties. Sign it.
2. File It Within 30 Days, Online or by Mail
Since July 2025 you can file Form 15620 online through your IRS Individual Online Account, and the IRS describes online submission as the preferred method. Download the confirmation copy. If you can’t use an online account, mail the signed election to the IRS office where you file your return, using certified mail with a return receipt. A mailed election counts as filed on time if it is postmarked within the 30 days, and the certified mail receipt is your proof. Use one method only. See the IRS page for Form 15620 for current instructions and addresses.
3. Give a Copy to Your Company
Give a copy of the election to the company for which you perform services. If someone other than that company transferred the property to you, they should receive a copy as well.
4. Keep Proof and Check State Rules
Keep a copy with your permanent tax records, along with the online confirmation or the certified mail receipt. The IRS no longer requires you to attach the election to your federal return. A few states ask for a copy with the state return for that year, so confirm your state’s rule. Countsure’s personal tax team can check this when preparing your return.
Heads up: if the 30th day falls on a weekend or federal holiday, the deadline generally moves to the next business day. Don’t plan around it; file as early as you can.
Costly Mistakes People Make with 83(b) Elections
Most 83(b) failures are about execution, not strategy. These are the errors that turn a smart tax move into an expensive regret.
Missing the 30-Day Window
The deadline runs from the transfer date, not the date you found out about the election. There are no extensions. A late election is invalid.
Treating "Near Zero" as Automatic
A very low grant-date value should come from proper analysis, not a guess. If the value you report has no support, the IRS can substitute its own, with tax, interest and possible penalties.
No Proof of Filing
Without an online confirmation or a certified mail receipt, you may not be able to prove you filed on time if the election is ever questioned. Regular mail leaves you exposed.
Electing on the Wrong Instrument
An 83(b) election applies to restricted stock and shares received on early exercise, not to unexercised options. Filing for the wrong instrument, or where there is no risk of forfeiture, achieves nothing.
Electing When Value Is Already High
If the grant-date value is substantial, the up-front tax can be a serious cash drain and can outweigh the benefit. Run the numbers before assuming you should always file.
Forgetting the Copies
The company needs a copy, and some states want one with your state return. Skipping these steps creates problems even when the federal filing was done correctly.
Frequently Asked Questions
1. What is a Section 83(b) election?
It is a written election, filed with the IRS, to be taxed on restricted stock or other restricted property at grant rather than as it vests. You pay ordinary income tax on the value at grant, less anything you paid, and later growth is taxed as a capital gain when you sell.
2. What is the deadline to file an 83(b) election?
Within 30 days of the date the stock or property is transferred to you. The IRS cannot extend it. If the 30th day falls on a weekend or federal holiday, the deadline generally moves to the next business day, but it is safest not to rely on that.
3. Can I file an 83(b) election online?
Yes. Since July 2025 the IRS lets you file Form 15620 through your IRS Individual Online Account, and it describes online submission as the preferred method. You can still mail a signed election instead. Use one method only, and give a copy to the company.
4. Who should consider filing an 83(b) election?
Founders and early employees who receive restricted stock while the company’s value is still very low and expected to rise, and who can comfortably pay any tax due at grant. If you paid full fair market value for the shares, the income at grant is zero, so the election usually costs nothing in tax.
5. What happens if I miss the 30-day deadline?
The election is no longer available for that grant. The shares are taxed as ordinary income at each vesting date, based on their value at that time, which is often much higher.
6. Does an 83(b) election apply to stock options?
Not to unexercised options. It does apply to shares you receive when you early exercise options before they vest, because those shares are restricted stock. Those elections follow the same 30-day rule from the exercise date.
7. Do I need a valuation to file an 83(b) election?
You must report the fair market value of the property at grant. A defensible valuation, such as a current 409A valuation or an independent appraisal, supports that figure if the IRS later questions it.
8. Can I revoke an 83(b) election?
You can revoke it before the 30-day window closes. After that, the IRS consents to revocation only if you made the election under a mistake of fact about the underlying transaction and you ask within 60 days of discovering the mistake. A mistake about the value or the tax result does not qualify.
9. Can I get the tax back if I forfeit the shares?
No. If you forfeit unvested shares, you cannot deduct the income you reported under the election. You can generally claim a loss only for any amount you actually paid for the shares, less anything you receive back.
Don't File Your 83(b) on a Guess.
The election is only as strong as the fair market value behind it. Countsure’s valuation team prepares defensible grant-date valuations and delivers them in time for you to file well inside the 30-day window. Fill out the form below, or book a call directly.
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Parth Shah, Managing Director
(CPA-US, FCA, RV-S&FA, DISA)
Parth Shah who is head of Accounts and Book keeping has experience of more than 10 years. A Certified Public Accountant – US, fellow Chartered Accountant, Registered Valuer and Diploma in Information System Audit.
