To file an 83(b) election, complete IRS Form 15620 or a compliant written statement, sign it, and file it within 30 days after the restricted stock is transferred to you. Send the required copies and keep proof of timely filing. The election measures taxable compensation at transfer rather than later vesting, which can help when the stock’s value is low—but can cost you if the investment fails.
How to file an 83(b) election, step by step
First, confirm you actually received restricted property. An unexercised option or an RSU promise is not the same as owning restricted stock. For an early exercise, identify the date the shares were transferred, rather than assuming the grant date starts the clock.
- Gather the stock documents. You need the transfer date, number and description of shares, restrictions, fair market value at transfer, and the amount you paid.
- Complete and sign the election. Use IRS Form 15620, or a written statement containing the information required by the IRS. Include your taxpayer identification number and the tax year.
- File within 30 days of transfer. IRS Publication 525 directs you to the IRS service center where you file your return, using the state-specific address for a return without a payment in the Form 1040 instructions. Verify the current address before mailing.
- Send copies. Give a copy to the person or company for whom you performed the services. If someone other than you received the property, that recipient also needs a copy.
- Keep evidence. Retain the signed election, stock documents, and proof of timely mailing, such as a certified-mail receipt. You generally do not attach the election to your annual income-tax return.
Do not wait for tax-filing season. This deadline runs from the stock transfer, even if your next return is months away.
How your choice changes your tax liability
Restricted stock often comes with a condition: leave the company before it vests and you may lose the shares. Without an election, compensation is generally measured when the stock becomes substantially vested—when it is transferable or no longer subject to a substantial risk of forfeiture.
The taxable amount is the stock’s value at that time minus what you paid for it. If the company grows before vesting, the compensation amount can grow too, even when there is no market where you can sell the shares.
An 83(b) election moves that measurement to the transfer date. Pay the full fair market value then, and the taxable spread can be zero. Later appreciation generally does not become additional compensation as the stock vests; a later sale produces a capital gain or loss, with the rate depending on holding periods and other rules.
The tradeoff is that you choose before knowing how the investment turns out. You generally cannot recover tax on the amount elected into income simply because you later forfeit the shares. You also cannot freely revoke an election because the price fell.
Tax calculations with and without the election
Assume you buy 10,000 restricted shares for $1 each, equal to their fair market value at transfer. They all vest one year later at $5 per share, and you eventually sell them for $8. Ignore fees, state taxes, and any special exclusion.
| Event | With an 83(b) election | Without an election |
|---|---|---|
| Cash paid for the shares | $10,000 | $10,000 |
| Compensation at transfer | $0 | $0 |
| Compensation at vesting | $0 | $40,000: $50,000 value minus $10,000 paid |
| Basis after vesting | $10,000 | $50,000 |
| Capital gain on the $80,000 sale | $70,000 | $30,000 |
The election changes when and how the $70,000 total increase is taxed. It does not make the increase disappear. Long-term capital-gain treatment depends on the applicable holding period; without an election, the capital-gain holding period generally starts at vesting.
Now change the outcome: the shares become worthless before vesting. You still lost the $10,000 purchase price. If you had elected on a positive taxable spread, you could also have paid tax on value you never received in cash. That downside belongs in the decision before you file.
The early-exercise scenario
Some option plans let you buy shares before the options vest. Those unvested shares can be restricted property eligible for an election.
With an early-exercised nonqualified stock option, paying a $1 strike price when the shares are worth $1 creates no spread at transfer. An eligible, timely 83(b) election can fix that compensation amount then. Without it, later vesting at a higher value can create compensation income.
Incentive stock options have different regular-tax and alternative minimum tax rules. An election on early-exercised ISO shares can affect when the AMT spread is measured; it does not remove AMT or the ISO sale requirements. Review the ISO exercise and AMT calculation separately.
Before choosing, put the transfer date, purchase cost, current value, vesting conditions, and cash you could lose on one page. The stock-option exercise framework can help you weigh an earlier holding period against liquidity and company risk.