If you’re receiving equity compensation, it’s essential to know whether you’re eligible to make an 83(b) election. This tax election can provide substantial tax benefits—but only if you meet certain criteria.
Who Can Make an 83(b) Election?
The 83(b) election is available to individuals who receive restricted stock or early-exercised stock options (typically Incentive Stock Options or ISOs) that are subject to vesting. These types of equity grants are considered “substantially nonvested” and are eligible for early taxation under Section 83(b) of the Internal Revenue Code.
By filing the election, you choose to pay income tax on the fair market value of the stock at the time of grant or early exercise, instead of waiting until the shares vest—when the value may be much higher.
Who Cannot Make an 83(b) Election?
Restricted Stock Units (RSUs) are not eligible for an 83(b) election. That’s because RSUs are taxed when they vest, not when they’re granted. Since you don’t actually own the stock until the vesting date, there’s no property interest to make an election on.
If you’ve received RSUs, you’ll be taxed on their full value at ordinary income rates when they vest, and there’s no option to accelerate that tax liability.
Common Scenarios for 83(b) Elections
You might consider making an 83(b) election if:
- You’ve early exercised stock options and are holding unvested shares.
- You’ve received founder shares or restricted stock in a startup.
- The current stock value is low, and you expect significant future growth.
Final Word
An 83(b) election can be a valuable tax strategy—but it’s only available to those with restricted stock or early-exercised options. If you’re dealing with RSUs, the election doesn’t apply. Make sure you understand the type of equity you’ve received and consult with a tax professional to decide whether an 83(b) election makes sense for your situation.