What Is an 83(b) Election?

The default rule is the problem. Under Section 83(a), stock you receive for services that is still subject to vesting is not taxed when you get it. It is taxed as each block vests, as ordinary income, at whatever the shares are worth on each vesting date. If the company does well, you owe real tax on paper gains, on shares you usually cannot sell, at the highest rates in the code.

The 83(b) election flips that. You volunteer to be taxed once, up front, on the transfer-date value minus anything you paid for the shares. After that, vesting is a non-event for income tax. When you eventually sell, the growth is capital gain, and your holding period runs from the transfer date instead of restarting at every vesting date.

The reason founders file is arithmetic, not cleverness. If your shares are worth $0.001 each on the grant date and you paid $0.001 each for them, the election reports zero income. You have prepaid the ordinary-income toll at its lowest possible price.

Founders receiving restricted stock at formation. This is the classic case. The company is days or weeks old, the shares carry a nominal value, and the stock vests over four years. Filing the election costs little or nothing in tax today because there is almost no value to tax. Not filing means every future vesting date is an income event at the then-current valuation, which is exactly backwards for someone who expects the company to grow.

Employees who early-exercise stock options. Some startups allow you to exercise options before they vest. The shares you receive are restricted stock, and the same 30-day clock starts on the exercise date. If you exercise right after the grant, the spread between strike price and market value is usually zero, so the election reports little or no income. If this is your situation, our CPA services for tech employees page covers how the election interacts with the rest of your equity picture.

Who cannot use it: RSU holders and holders of unexercised options. The election only applies to property actually transferred to you. RSUs are a promise of future shares, and an option you have not exercised is a right, not stock. There is nothing to elect on.

For decades this was a do-it-yourself written statement. In late 2024 the IRS released Form 15620, a standardized 83(b) election form, and since 2025 the form can be completed and submitted online through an IRS individual online account. A written election that contains the required information still works if you file on paper, but electronic submission requires Form 15620.

1. Confirm your transfer date. The 30-day window runs from the date the stock was transferred: the restricted stock purchase or grant date, or the early-exercise date. Get this from your stock purchase agreement, not from memory.
2. Complete Form 15620. It asks for your information, the company, the number of shares, the transfer date, the fair market value at transfer, and the amount you paid. The taxable amount is the difference.
3. File it one way, not two. Either submit online through your IRS account, or mail the signed form (or a written election) to the IRS office where you file your federal income tax return. Use certified mail with return receipt so the postmark proves timeliness.
4. Give your employer a copy. A copy of the election goes to the company whose stock you received.
5. Keep proof forever. The submission confirmation or the stamped certified-mail receipt is the only evidence the election exists. You no longer attach a copy to your tax return, a requirement the IRS removed for transfers on or after January 1, 2016, so your own records carry the entire burden.

Qualified small business stock under Section 1202 can exclude some or all of the federal gain when you sell qualifying C corporation stock, but the exclusion depends on how long you have held the shares. Here is the trap: without an 83(b) election, restricted stock is treated as acquired when it vests, so each vesting tranche starts its own QSBS holding period. With the election, the entire holding period starts at the transfer date. On a standard four-year vest, filing the election can effectively hand you up to four extra years of holding period on your later tranches.

The stakes went up under the 2025 tax law. For stock issued after July 4, 2025, OBBBA created a tiered exclusion that begins at three years of holding and reaches 100% at five, alongside a higher per-issuer cap. Every one of those thresholds is measured from when your holding period starts, which is exactly what the 83(b) election controls. The full rules, including which businesses qualify at all, are covered in our QSBS Section 1202 guide.

When the tax today is real money and the stock might be worth nothing. The election means prepaying tax on today's value. If you join a startup later in its life and your restricted shares carry a meaningful spread, filing means writing a real check now on shares you cannot sell. If the company fails or you forfeit the shares by leaving early, you do not get that tax back: there is no deduction for the income you recognized, and your loss is generally limited to any amount you actually paid and did not recover. Most startups fail. Prepaying tax on a likely-worthless asset is a donation, not a strategy.

When you hold options you have not early-exercised. There is nothing to elect on until shares are actually transferred to you. Filing an 83(b) election on an unexercised option grant does nothing, and it does not somehow lock in today's value for a future exercise.

When the stock is already vested at transfer. Fully vested stock is taxed at transfer under the normal rules anyway. The election adds nothing.

The honest framing: at near-zero value, filing is close to free and the upside is large, so the decision is easy. As the grant-date spread grows, the election becomes a real wager on the company and on your own tenure. That is a modeling conversation, and it is one our startup CPA team has weekly.

There is no fix. The 30-day deadline is written into the statute, which means the IRS has no discretion to extend it, and the administrative relief that rescues some other late elections is not available for this one. Courts have not carved out good-faith exceptions. A missed window means the default rules apply: ordinary income at each vesting date on the then-current value.

What you can actually do from here is plan around it, not paper over it. Model the tax hit at each upcoming vesting date so nothing surprises you. If the company's value is still low, some companies restructure how future equity is granted so the next tranche starts clean; that is a conversation for the company's counsel and CPA together, because it has consequences beyond your return. And keep perspective: the default treatment is unfavorable, not fatal. Appreciation after each vesting date still becomes capital gain.