83(b): The high risk, high reward tax option for start-up employees
If you’ve ever gotten equity compensation with a vesting schedule—like startup founders, early hires, or execs—someone’s probably mentioned the “83(b) election.” Maybe with a knowing nod and a warning: “You’ve got 30 days to file it, or you’re out of luck.”
But what is it, really? And how do you know if it’s worth it?
TL;DR:
The 83(b) election lets you pre-pay taxes on restricted stock at its current (often low) value, gambling on future growth.
It’s a powerful tax move for startup founders, early employees, or anyone receiving equity subject to vesting—but it’s not for everyone.
Get it wrong, and you could pay taxes on stock that never vests or drops in value.
What Is the 83(b) Election?
The 83(b) election is a provision in the tax code that lets you pay taxes on the current value of restricted stock when it’s granted, rather than when it vests.
Why would you do that?
Because if the stock grows in value—say, from $0.01 per share to $100 per share—you want to lock in your tax liability at the low starting price. That way, all future gains are taxed as long-term capital gains, not ordinary income.
It's like pre-paying your tax bill on stock that (hopefully) becomes more valuable.
Who Can Use an 83(b) Election?
The 83(b) election is available to anyone receiving restricted stock (i.e., stock that is subject to vesting), including:
Startup founders receiving equity at formation
Early employees granted restricted stock
Executives at public companies with vesting equity awards (note: not RSUs)
But it’s not available for:
RSUs (Restricted Stock Units) – These are taxed at vesting, and an 83(b) doesn’t apply.
Vested stock – If it’s already yours, there’s nothing to accelerate.
Boom and bust: 83(b) scenarios to consider
The higher the grant value, the more painful it is if the company flops. The 83(b) election becomes riskier as the upfront tax bill grows. Note this assumes you’re actually around for the vesting…see more on that alternative below.
What If You Leave Before Vesting?
This could be a scenario even worse than the table above.
If you make the election and then leave the company before all your shares vest, you lose the unvested shares—but you don’t get back the taxes you already paid on them.
Let’s say you pay taxes on 100,000 shares up front, but only 25% vest before you leave. You just paid tax on 100% of the shares but only kept 25%. The IRS won’t give you a refund for the shares you forfeited.
The 83(b) election assumes full vesting will happen. If that’s uncertain—whether due to career plans, company risk, or personal circumstances—think twice.
Best Practices & Filing Tips
Making the election is simple—but unforgiving.
File within 30 days of the grant date (not vesting date). No exceptions.
Send it via certified mail with return receipt, and keep a copy.
Include it with your tax return, even if you already filed.
If exercising options early and receiving unvested stock, confirm with your company that early exercise is allowed.
Before filing, ask:
Am I paying taxes on low value stock?
Do I believe this equity will vest and grow significantly? And will I actually be around for the vesting?
Can I afford to lose this tax payment if things go south?
And talk to a tax advisor—especially if your equity grant is sizable.
When the stars align, the 83(b) election can turn a massive tax bill into a rounding error. Just don’t forget the 30-day clock.
Disclaimer: This article is for informational purposes only and does not constitute tax or legal advice. Please consult with a qualified tax professional or financial advisor before making any decisions regarding your equity compensation or tax filings.
