30 days from grant
The election must be filed with the IRS within 30 days of the grant date. No extensions.
The 83(b) shortcut
Lock in a low basis
Taxed on the low grant-date FMV. All future appreciation becomes capital gain.
No refund if forfeited
If the stock is later forfeited, tax already paid is not refundable.
Introduction
A one-time filing with lasting tax consequences
The 83(b) election is a powerful tax strategy available to individuals who receive Restricted Stock Awards (RSAs) as part of their compensation package. This IRS provision allows recipients to pay income tax on the value of the stock at the time it is granted, rather than waiting until it vests. By choosing to be taxed earlier — when the stock may be worth significantly less — employees can potentially reduce their total tax liability and gain greater control over future gains.
01Baseline
How RSA taxation normally works
Without the 83(b) election, RSAs are taxed as ordinary income when they vest, not when they are granted. At vesting, the FMV of the stock is considered compensation and reported on Form W-2 — subject to federal income tax, state tax (if applicable), and payroll taxes such as Social Security and Medicare.
If the value of the stock increases significantly between the grant and vesting dates, this can result in a much higher tax bill. After vesting, any additional gain from selling the stock is subject to capital gains tax, based on how long the shares are held after vesting.
02The election
How the 83(b) election changes the tax timing
Without 83(b)
Taxed at vesting
- Ordinary income on FMV at vest
- Full payroll and federal/state income tax
- Capital gains clock starts at vest
- Bracket bump risk if stock has appreciated
With 83(b)
Taxed at grant
- Ordinary income on low grant-date FMV
- All future appreciation = capital gain
- Long-term holding period starts earlier
- Especially strong for early-stage startups
By filing an 83(b) election, the RSA recipient accelerates the taxable event to the grant date. This means the FMV of the shares at the time of grant is treated as ordinary income, even though the shares are not yet vested. From that point forward, any future appreciation in stock value is taxed at capital gains rates.
This strategy is especially effective when the stock’s grant date value is low — such as in early-stage startups — because it locks in a lower tax basis and starts the long-term capital gains holding period sooner.
03Watch outs
Important considerations
30-day window
The 83(b) election must be filed with the IRS within 30 days of the grant date. Miss the window and the option is gone.
No refund on forfeiture
If the stock is later forfeited, there is no tax refund for income already paid.
Reporting accuracy
Accurate reporting is essential to avoid tax errors or double taxation. Keep a signed copy of the election in your records.
83(b) is a one-shot decision — get it right
The 83(b) election gives RSA recipients an opportunity to reduce taxes and maximize after-tax gains, but it requires upfront decision-making and careful planning. Call (212) 641-0673 or send the contact form.
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83(b) window is 30 days
Make the call before the window closes
Reduce taxes and maximize after-tax gains. Call (212) 641-0673 or send the contact form. No charge for the conversation.
Reviewed by George Dimov, CPA, New York, NY. Serving clients in all 50 states, 15+ years advising founders and employees on equity compensation. President of George Dimov, CPA, a New York City firm serving clients across the five boroughs and nationwide.