An 83(b) election is a filing under Section 83(b) of the Internal Revenue Code that elects to have restricted stock taxed at its fair market value on the date it is transferred rather than as it vests, so that all later appreciation is taxed as capital gain instead of as ordinary compensation income.
In plain terms
Restricted stock is taxed when it stops being restricted. That sounds harmless until the company grows: shares granted at a fraction of a cent are worth dollars by the time they vest, and the difference is taxed as salary. An 83(b) election moves the tax event to the front, when the stock is nearly worthless and the bill is trivial. Everything the shares do afterward is capital gain. It is one page, filed once, that fixes the character of possibly enormous future income — which is why founders file it reflexively and why missing it is the most expensive clerical error in startup life.
How it works
Section 83 taxes property transferred for services when it becomes “substantially vested.” Section 83(b) lets the recipient elect otherwise: to include the value at transfer, less anything paid, in income immediately. For founder stock bought at fair value that difference is near zero, so the election costs almost nothing and starts the capital-gains clock on day one.
The deadline is the entire risk. Under Treas. Reg. § 1.83-2, the election must be filed no later than 30 days after the date of transfer. There are no extensions and no reasonable-cause relief. Once filed, it is irrevocable without the Commissioner’s consent. Until recently, taxpayers drafted the statement themselves; in November 2024 the IRS published Form 15620, the first standardized version, and opened an electronic filing portal for it in July 2025.
The cost appears only if things go wrong. If the stock is later forfeited — the founder leaves before vesting, the shares are repurchased — the tax paid at grant is not refunded, and § 1.83-2 allows no deduction beyond any loss on what was actually paid for the shares. The election is a bet that the shares will vest.
The numbers
- Filing window: 30 days from the date of transfer. No extension exists (Treas. Reg. § 1.83-2(b)).
- Typical founder arithmetic: 1,000,000 shares worth $0.0001 each, received for nothing, produce $100 of ordinary income at grant. The same shares vesting over four years by which point they are worth $2.00 would produce roughly $2,000,000 of ordinary income instead.
- Rate difference, 2026: long-term capital gain at 0%, 15%, or 20% federally, against a top ordinary rate of 37%, plus the 3.8% net investment income tax above $200,000 of modified AGI (single) or $250,000 (joint) — thresholds unindexed since 2013.
- Official form: IRS Form 15620, released November 2024; electronic filing since July 2025. Optional — a compliant written statement still works.
- If the stock is forfeited: no deduction for the income previously recognized (Treas. Reg. § 1.83-2(a)).
- Jurisdiction: United States federal income tax. State treatment generally follows but not automatically.
What people get wrong
That an 83(b) election is something you file on a stock option. It is not — options are not “property” transferred under § 83 until they are exercised. What people mean is an early exercise: the company permits the option to be exercised before vesting, producing restricted stock, and the 83(b) is filed on that stock. Without early-exercise rights in the plan documents, there is nothing to elect on and the 30-day clock never starts.
The subtler error concerns incentive stock options. Filing an 83(b) on early-exercised ISOs does fix the alternative minimum tax measurement at the exercise date, which is usually the point. It does not accelerate the ISO holding periods that determine whether a later sale is a qualifying disposition; those still require two years from grant and one year from exercise. Two clocks, started by different events — treating them as one is how a carefully planned election ends in ordinary income anyway.
Related
Read more: Equity Compensation: RSUs, ISOs, and the Tech Wealth Engine · Tech Wealth: How Founders and Investors Live Differently · Taxes: How Wealth Is Structured and Preserved
See also: QSBS · RSU · ISO vs NSO · Alternative minimum tax