The 83(b) Election, How Startup Founders Pay Tax on Restricted Stock at Grant

You just got equity in a startup, and a 30-day clock you did not know about is already running.

That clock belongs to the 83(b) election, one of the most consequential tax moves a startup founder or early employee ever makes. Get it right and you can save a startling amount of tax. Miss the window and you are locked into a default treatment that can cost you tens or even hundreds of thousands of dollars as the company grows. The mechanics are simple once someone explains them, and that is what this guide does.

By the end, you will know what the election does, how it changes your tax, the deadline you cannot move, and how to actually file one.

What the 83(b) election is

The 83(b) election is a provision in the Internal Revenue Code that changes when you pay tax on equity.

When you receive restricted stock for your work, the shares usually come with a catch. They are subject to vesting, meaning you can lose them if you leave before a set date. In tax language, that condition is a substantial risk of forfeiture. As a service provider, whether founder, employee, or contractor, you can make an election to be taxed on the value of those shares now, at the moment they are granted, instead of later as they vest. That single choice is the whole point of the election.

It sounds small. It is not.

The timing of when stock is valued and taxed decides whether you pay tax on a tiny number today or a large one later, and for equity in a fast-growing company, the gap between those two numbers can be enormous.

How you are taxed without the election

To see why the election matters, start with what happens if you do nothing.

Under the default rule, you are not taxed when you receive the restricted stock. Instead, you owe tax each time a tranche of stock vests. At every vesting date, the difference between what you paid and the fair market value of the shares at that moment counts as ordinary income, and it is taxed at your ordinary income tax rate. As the shares vest over four years, you pay ordinary income tax again and again, each time on a higher value if the company has grown. At the time of vesting, those shares of stock are subject to ordinary income tax, and unless an election is filed, that fully vested stock is taxed at ordinary rates rather than capital gains rates.

That is the trap for anyone holding early-stage equity.

A founder who paid a fraction of a cent per share owes little at grant, but if the stock is worth dollars by the time it vests, every vesting event becomes a fresh ordinary income tax bill on stock the founder cannot even sell yet.

How the 83(b) election changes the tax

Filing the election flips that timeline on its head.

When you make this election, you choose to be taxed on the value of the shares at the time of grant rather than at vesting. You report the spread between what you paid and the fair market value at grant as ordinary income right away. For a founder whose stock is worth almost nothing on day one, that taxable income is often near zero. From that point forward, any increase in value is treated as a capital gain instead of ordinary income, and if you hold the shares long enough, it qualifies for long-term capital gains rates when you sell.

That shift is where the tax savings live. When making this election, the value of the stock is taxed once, at grant, and the election allows that low number to stand in for what could later be a huge one. The election can allow future appreciation to be subject to lower capital gains tax rates, a significant tax difference on a winning company.

You are trading a small, certain tax today for the chance to convert future appreciation from ordinary income into lower-taxed capital gains. The election also starts your capital gains holding clock at grant, which can matter for long-term treatment and for qualified small business stock benefits down the road. On a young company that succeeds, the potential tax difference runs into real money, which is why founders rarely skip it.

The 30-day deadline you cannot miss

Here is the rule that ends more 83(b) plans than any other.

The election must be filed with the IRS within 30 days after the date the property is transferred to you, which is almost always the date of your restricted stock grant or your early-exercise date. Counting begins from that transfer, no later than the 30th day. You must make this election within 30 days, full stop. The IRS does not grant extensions, and courts have refused to excuse late filings, so a missed deadline means you simply default back to being taxed as the shares vest. If the 30th day lands on a weekend or holiday, the election counts as timely filed when it is postmarked the next business day.

Set the reminder the day you receive the stock, not the day you remember.

The clock does not start when you sign your grant agreement or when the board approves it. It starts when the property is transferred, so anchor your timeline to that date and treat the 30-day window as the hard line it is.

How to file the election

Filing used to be a paper-only scramble. It is cleaner now.

The IRS released Form 15620, a standardized election form, and as of 2025 you can file it electronically through the IRS portal, which gives you immediate confirmation of receipt. You can still mail a completed and signed election form instead, and many people do. If you mail it, send the signed election form and cover letter by certified mail with a return receipt, so you can prove you sent the form to the IRS inside the 30-day window. Whichever route you choose, the completed and signed election form goes to the same IRS office where you would otherwise file your federal tax return.

Two more steps make the election valid.

You must give a copy of the election to your company, since the regulations require the service recipient to have it. You no longer need to attach a copy to your income tax return, a requirement the IRS dropped for newer grants, but you should keep your own proof permanently. Before filing, get the details exactly right, because an incomplete election form is invalid, and the election form must be signed under penalty of perjury. It is worth having a tax professional review the numbers first, so contact your tax professional to review your Section 83(b) election before filing, while there is still time to fix a mistake.

The risk, and when an 83(b) election makes sense

The election is powerful, but it is a bet, and you should know what you are wagering.

You pay tax up front on stock that is subject to a vesting schedule, and your shares of restricted stock can still be lost. If you later forfeit the unvested shares by leaving early, you generally cannot recover the tax you already paid, and the loss is hard to use. So the election makes the most sense when the value of the shares is low today, the company has real room to grow, and you expect to stay through vesting. That profile fits most founders and early employees almost perfectly.

It fits far less well when the stock is already valuable at grant.

Paying a large ordinary income tax bill now, on shares you might forfeit and cannot sell, is a poor trade, and there an election may do more harm than good. When you do elect, the income shows up on your W-2, so your company handles the employment tax and tax withholding on it, and you may need cash to cover the tax bill even though you cannot sell the shares yet. Later gains can also draw the 3.8% net investment income tax, which is worth weighing as you map your personal tax picture across future tax returns. The election also applies to early-exercised stock options, including non-qualified stock options, as well as restricted stock grants, since exercising unvested options leaves you holding property that can be forfeited. Standard RSUs are the common exception, because no property transfers at grant, so there is nothing to elect on yet.

How CPA firms handle equity-comp elections at scale

For a CPA firm advising startups, the 83(b) election is a small form with an outsized cost of error, and the deadline is brutal.

Every new founder or early hire on the client roster can have a 30-day clock running, each one needing the right grant date, a correct fair market value, and a clean filing trail. That is precise, time-boxed work, and it is the kind of thing an offshore team is built to track. At Madras Accountancy, we help U.S. CPA firms manage equity-compensation filings for their startup clients, from confirming grant dates and values to preparing the election and keeping the records that prove a timely filing.

Because the income recognized on the election flows onto a W-2 and into the year's return, the work does not stop at the 30-day mark.

That is why we connect equity filings to a client's tax preparation and fractional CFO support, so the withholding, the reporting, and the eventual capital gains all line up cleanly when the shares are finally sold. Good records also help a founder make informed decisions and lower overall tax liability before the next round.

Frequently asked questions

What is an 83(b) election in simple terms? It is a choice to pay income tax on restricted stock at the moment it is granted rather than later as it vests. By electing early, you are taxed on the value at grant, which is often very low for a young company, and future growth is then taxed as a capital gain instead of ordinary income.

Who should file an 83(b) election? It usually makes sense for founders, early employees, and contractors who receive restricted stock at a low value with strong growth potential, and who expect to stay through vesting. It also applies to early-exercised stock options. It rarely makes sense when the stock is already worth a lot at grant.

What is the deadline to file an 83(b) election? You must file the election with the IRS within 30 days of the date the property is transferred to you, which is typically your grant or early-exercise date. There are no extensions, and the deadline is the same whether you file online or by mail.

How do I file an 83(b) election? You can complete IRS Form 15620 and file it electronically through the IRS portal, or mail a signed Form 15620 or a compliant written statement to the IRS office where you file your return. You also have to give a copy of the election to your company and keep proof of timely filing.

Do I still attach the 83(b) election to my tax return? No. The IRS removed that requirement for newer grants, so you no longer need to attach a copy to your income tax return. You do still need to file the election with the IRS within 30 days and provide a copy to your employer.

What happens if I miss the 30-day deadline? You lose the ability to make the election, and you default to the standard rule of paying ordinary income tax as each tranche vests. The IRS does not accept late elections, so the only real fix is to avoid missing the window in the first place.

What is the risk of filing an 83(b) election? You pay tax now on stock that may never fully vest. If you forfeit the unvested shares by leaving early, you generally cannot get that tax back. The election is a bet that the shares will vest and rise in value, which is why it suits low-value early-stage equity best.

Can I file an 83(b) election for RSUs? Generally no. Standard restricted stock units do not transfer property to you at grant, so there is nothing to elect on. The election applies to restricted stock awards and to early-exercised options, where you actually hold shares that are subject to a vesting schedule.