The 83(b) Election: Paying Tax Early on Restricted Stock
Why founders and early employees elect to be taxed on unvested stock at grant, the 30-day deadline with no extension, the risk if the stock is forfeited, and the IRS form that now exists for it.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Stock that vests over time is normally taxed when it vests, at its value then, as ordinary income. A Section 83(b) election lets the recipient be taxed at grant instead, on the value at grant — often near zero — so all later appreciation is capital gain. It must be filed within 30 days of grant, with no extension.
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How do the two outcomes compare?
| Event | Without the election | With the election |
|---|---|---|
| Grant of 100,000 shares worth $0.01 each, vesting over four years | No tax | Ordinary income of $1,000 (value minus any amount paid) |
| Each vesting date, shares now worth $2 | Ordinary income on the value at each vesting | Nothing |
| Sale years later at $10 | Capital gain on the amount above the vesting-date value; holding period starts at vesting | Capital gain on everything above $0.01; holding period starts at grant |
| Forfeiture before vesting | No tax was ever paid | No deduction for the income reported at grant; a loss only for any amount paid for the shares, less any amount received back |
For a founder who paid full value for the shares at grant, the income at grant is zero and the election costs nothing.
How is it filed?
Within 30 days of the grant date, send the election to the IRS — on Form 15620, which the IRS now provides for this (a signed written statement meeting the regulations still works too), either submitted online through an IRS Online Account or mailed to the IRS office where you file your return — and give a copy to the company. The 30 days count calendar days from the transfer — if the 30th day falls on a weekend or legal holiday, the next business day counts — and a late election is simply invalid. Keep proof of mailing or the electronic confirmation.
Why does it matter beyond the rate?
- Holding period. Capital gains become long-term once the shares have been held more than one year from grant rather than from each vesting date.
- Qualified small business stock. The Section 1202 holding period — three, four, or five years for a 50, 75, or 100 percent exclusion on stock acquired after July 4, 2025 (more than five years for earlier stock) — starts at grant with the election; without it, each vesting tranche starts its own clock.
- Company deduction. The company's compensation deduction matches the employee's income: small at grant with the election, larger at vesting without it.
What about LLC profits interests?
A profits interest in an LLC granted for services is generally not taxed at grant or at vesting under the IRS safe harbors in Rev. Proc. 93-27 and Rev. Proc. 2001-43, which say no 83(b) election is needed for a qualifying unvested interest. Recipients still commonly file a protective 83(b) election in case the interest does not meet the safe harbor.
When is the election a mistake?
When the stock has substantial value at grant and the recipient must pay real tax with no cash; when forfeiture is likely; or when the stock is expected to fall. The tax paid at grant is lost if the shares are forfeited or decline.
Frequently asked questions
Does the election apply to stock options?
Not to an unexercised option. It applies to restricted stock received on early exercise of an option, if the plan allows early exercise.
Can I make the election for stock I bought at full price?
Yes, and it is routine for founders — zero income at grant, full capital gain treatment later.
What if I missed the 30 days?
There is generally no relief — the 30-day deadline is set by statute, so the IRS cannot extend it. The stock will be taxed at vesting. Some companies issue a fresh grant to reset the clock, with its own consequences.
Do I report the election on my return?
Report the income (if any) as wages or compensation in the year of grant; the company should include it on the W-2 or 1099. A copy of the election no longer has to be attached to the return (a requirement dropped for property transferred on or after January 1, 2016), but keep it with your records.
Official sources
The IRS explains: “When substantially nonvested property is transferred in connection with the performance of services, the person who performs the services (e.g., an employee or an independent contractor) may make an 83(b) election by filing Form 15620.” — Internal Revenue Service, Form 15620, Section 83(b) Election (Rev. April 2025), with instructions, https://www.irs.gov/pub/irs-pdf/f15620.pdf
Federal law provides: “An election under paragraph (1) with respect to any transfer of property shall be made in such manner as the Secretary prescribes and shall be made not later than 30 days after the date of such transfer. Such election may not be revoked except with the consent of the Secretary.” — Legal Information Institute, Cornell Law School, 26 U.S. Code § 83 - Property transferred in connection with performance of services, https://www.law.cornell.edu/uscode/text/26/83
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk files the election and the proof within the 30 days whenever a client receives restricted equity. See pricing or book a free fit call.
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U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
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