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Author: Carlos Hereida, Attorney
TLDR: Startups issue restricted stock and allow early option exercises all the time. But without a timely 83(b) Election, recipients could face huge, unexpected tax bills as their companies grow.
With the ability to file an 83(b) Election online, there’s no excuse to miss the deadline. The process is now faster, easier and more reliable, making it simpler than ever for founders, employees and advisors to maximize their upside.
Why This Matters for Startup Founders, Employees and Advisors
If you’re a startup founder, early employee or advisor receiving stock subject to vesting or early exercising an option grant, then you’ve probably heard of Section 83(b) of the Internal Revenue Code. Filing an 83(b) Election can make a huge difference in your tax liability and long-term upside.
Generally, receiving restricted stock without paying the fair market value for such stock is a taxable event. At its core, this powerful tax election allows you to accelerate recognition of taxable income from restricted stock to the date of receipt, instead of paying taxes as the stock vests over time.
An 83(b) Election can help you to:
- Pay tax when the value is low: At grant, a startup’s stock often has a very low fair market value. Paying tax upfront means that you lock in that low value and pay less income tax related to your receipt of the stock.
- Avoid surprise tax bills: Without an 83(b) Election, each vesting event may trigger taxable income based on the (hopefully much higher) fair market value of the stock at the time.
- Keep more of your upside: If the company grows significantly, an 83(b) Election can prevent you from paying income tax at every vesting milestone and instead position you to pay a lower long-term capital gains rate when you later sell the stock.
That said, filing an 83(b) Election is not always the right move. If the stock never increases in value (or worse, if the company fails), you could end up paying tax on shares that end up worthless. Always consult with a tax advisor before making an 83(b) Election to confirm that it’s the right approach for you.
Which Equity Types Are Covered?
The 83(b) Election applies to restricted stock awards (i.e., actual shares subject to vesting). It does not apply to stock options, which generally do not trigger income upon grant.
However, if you exercise stock options early before they vest, and the exercised shares are subject to vesting, then you can and should consider making an 83(b) Election on those shares. Again, context matters, and professional tax and legal guidance is essential to ensure that you’re making the right decision for your specific situation.
A Long-Awaited Update: 83(b) Elections Can Now be Filed Online
Until recently, filing an 83(b) Election was one of the more frustrating administrative tasks in the startup world. The IRS required you to print and mail a physical letter and an 83(b) Election form to the IRS within 30 days of receiving the restricted stock. This was an outdated and error-prone process, often causing anxiety over whether the IRS received and processed the filing correctly.
Now, the IRS has introduced Form 15620, a digital version of the 83(b) Election that you can file electronically through the IRS website. This change brings much-needed modernization to startup equity tax compliance.
The new online filing option doesn’t change the strict 30-day filing deadline, but it does help to eliminate much of the stress and uncertainty.
How to File an 83(b) Election Online
The new electronic submission process makes it easy to comply with the strict 30-day window for filing 83(b) Elections:
- Go to irs.gov and sign in to your account (or create one).
- Navigate to Form 15620 from the available forms page.
- Fill in the required details about your equity grant, including the grant date, number of shares, fair market value and purchase price (if any).
- Submit electronically.
- Save a copy of your filing and the timestamped confirmation for your records.
- Provide your saved copy to the issuing company.
That’s it—no more certified mail, no more delivery anxiety, and no more wondering if you missed the filing deadline.
Best Practices for Founders and Equity Recipients
- Act fast: The 30-day deadline is still strict. If you miss it, there’s no do-over. Make the 83(b) Election as soon as possible after receiving stock subject to vesting.
- Pick one filing method: You can still file by mail, but the IRS requires you to choose either online or mail filing, not both.
- Educate early: Startups should alert grantees about the 83(b) Election option when issuing any restricted stock, so that no one misses their chance to file.
- Keep records: Save a copy of your online 83(b) Election filing and share it with the company that issued you the equity.
Questions about equity compensation or 83(b) Elections? We’re here to help. Contact us today!
Clients Also Ask Us:
What is an 83(b) Election?
An 83(b) Election is a tax election under the Internal Revenue Code that lets you pay taxes on restricted stock at the time of grant rather than as the stock vests over time. This can lock in a low valuation for income tax purposes and potentially reduce your future tax burden.
Who should consider filing an 83(b) Election?
Startup founders, employees and others who receive restricted stock subject to vesting or who exercise stock options early should consider filing an 83(b) Election. Whether it makes sense depends on your tax situation and the company’s prospects, so it’s essential to consult a tax advisor.
How do I file an 83(b) Election with the IRS?
You can file an 83(b) election online using IRS Form 15620 through your IRS.gov account within 30 days of receiving the restricted stock. While you can still mail in a paper election, you must choose one filing method, not both.
What happens if I miss the 30-day deadline?
Unfortunately, the deadline is strict and there are no extensions. If you miss it, you’ll be taxed as your stock vests over time, often at much higher valuations, which can result in a significantly larger tax bill.
Does an 83(b) Election apply to stock options?
No, an 83(b) Election does not apply to stock options at the time of grant. However, if you exercise stock options early and the resulting shares are subject to vesting, you can make an 83(b) Election for those shares.
What records should I keep after filing?
Always save a copy of your submitted 83(b) Election and the IRS confirmation (if filed online). You should also provide a copy to your company for its records. These documents can be critical in future audits, financings or an eventual exit.
