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IRS 83(b) Election for Restricted Stock

Difficulty Intermediate Risk Low Applies To All Potential Savings $10,000 - $100,000+ depending on equity value Last Verified 2026-03-15

IRS 83(b) Election for Restricted Stock

What Is It?

When you receive restricted stock as compensation — common at startups and in executive compensation — the IRS normally taxes you when the stock vests, at whatever the stock is worth at that time. If the company has grown substantially by then, you could owe ordinary income taxes on a large gain you haven’t actually realized yet.

An 83(b) election lets you pay taxes now, on the much lower current value, and have all future appreciation taxed as long-term capital gains instead of ordinary income. For startup equity in particular, this can save tens or hundreds of thousands of dollars.

How It Works

  1. Understand your grant. You must have received actual restricted stock (not stock options or RSUs) that is subject to a vesting schedule or other substantial risk of forfeiture.
  2. Act within 30 days. You must file the 83(b) election with the IRS within 30 days of the grant date — no exceptions. This deadline is hard and cannot be extended.
  3. Write the election letter. Draft a letter that includes: your name, address, and Social Security number; a description of the property; the date of transfer; the nature of the restriction; the fair market value at the time of transfer; and the amount you paid for the stock (if any).
  4. Send it to the IRS. Mail the election to the IRS Service Center where you file your taxes. Send it via certified mail with return receipt to create a paper trail.
  5. Send a copy to your employer. Provide a copy of the election to your employer within the same 30-day window.
  6. Keep a copy for your records. Attach a copy to your tax return for the year of the grant.

What Most People Don’t Know

  • RSUs are not eligible. Restricted Stock Units (RSUs) do not qualify for an 83(b) election — they are promises to deliver stock in the future, not actual stock transfers. The election only works for restricted stock grants.
  • The clock starts on the grant date, not the vesting date. Many founders and employees miss this because they confuse “grant date” with “vesting date.”
  • If the company fails, you may have overpaid. If you file an 83(b) election and the stock later becomes worthless, you lose the taxes you paid — you generally cannot get them back (though you may be able to claim a capital loss).
  • Founders should almost always file. If you’re a co-founder receiving stock at near-zero value (a fraction of a cent per share), the tax owed is negligible and the upside protection is enormous.

Who Benefits Most?

Startup founders and early employees who receive restricted stock at a low valuation. The earlier in the company’s life the grant occurs, the more valuable the election — the gap between the current value and the future vested value is likely to be largest.

  • IRC § 83(b) — Allows taxpayers to elect to include the value of property subject to a substantial risk of forfeiture in income at the time of transfer rather than at vesting.
  • Treasury Regulation § 1.83-2 — Sets out the requirements and procedure for making a valid 83(b) election, including the 30-day filing deadline.
  • IRS Revenue Procedure 2012-29 — Provides a safe harbor for 83(b) election filings.

Frequently Asked Questions

When exactly does the 30-day clock start for filing an 83(b) election?

The 30 days begins on the grant date — the date the board of directors approved the stock grant — not the date you received the paperwork or signed the stock agreement. Count every calendar day including weekends and holidays. Because founders sometimes receive documents after the board meeting, the actual deadline may be earlier than you realize. When in doubt, file immediately.

Can I file an 83(b) election for RSUs (restricted stock units)?

No. The 83(b) election applies only to actual restricted stock transfers — physical shares that are issued to you now but subject to forfeiture or a vesting schedule. RSUs are promises to deliver stock in the future and are not a current transfer of property, so they do not qualify. This is one of the most common points of confusion.

If I file an 83(b) election and the company later fails, do I get my taxes back?

Generally no — you cannot recoup the ordinary income tax you paid at grant if the stock becomes worthless. You may be able to claim a capital loss to offset other capital gains, but the ordinary income tax is gone. This is the main downside risk of the election, which is why it’s most valuable when the grant-date value (and therefore the upfront tax) is very low.

How do I actually file the 83(b) election — is there a specific IRS form?

There is no dedicated IRS form. You draft a written election letter yourself (or use your company’s template) that includes your name, address, SSN, a description of the shares, the grant date, the FMV at grant, and any amount you paid. Mail it via certified mail with return receipt to the IRS Service Center where you file your return within 30 days of the grant date. Also send a copy to your employer and keep one for your own records to attach to your tax return.

As a founder receiving stock at near-zero value, how much tax will I actually owe when I file an 83(b) election?

If your stock is issued at fair market value (common for early-stage founders whose shares may be worth fractions of a cent), the taxable income on the election is the FMV at grant minus what you paid — which could be nearly zero. The tax owed might be negligible, while the benefit of locking in capital gains treatment on all future appreciation can be enormous. This is why most startup attorneys strongly recommend founders always file.

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