Plan Early Or Pay Later: Why And When To File An 83(b) Election

Proactive tax planning by timely filing an 83(b) election with the IRS at the time of equity issuance can save your executives and key employees thousands.

Companies often grant equity incentives to their executives and key employees in the form of restricted equity. For example, a Company may grant equity that is subject to vesting over time, upon the achievement of performance milestones, or in connection with an M&A event. With the issuance of restricted equity issued in connection with the performance of services, recipients have a meaningful opportunity for tax planning by filing an 83(b) election with the IRS. When appropriate, a Company may include language in its restricted equity award agreement stating that the recipient of an equity award will be responsible for determining whether an 83(b) election is advisable, timely filing any 83(b) election with respect to the restricted equity within 30 days of the grant date, and providing the Company with a copy of the filed election.

An 83(b) election is a form letter mailed to the IRS informing them that the recipient of restricted equity elects to accelerate ordinary income tax on the subject equity on the date of transfer rather than the future dates when the equity vests.

The result of filing an 83(b) election is that the recipient who makes an election will be taxed on the value of the restricted equity when granted at an ordinary income tax rate. When the equity later vests, no ordinary income is recognized. At the time when the subject equity is sold, the recipient may recognize additional gains, which may be eligible for long term capital gains treatment if the applicable holding period and other requirements are satisfied.

If the recipient of restricted equity does not file an 83(b) election, then the recipient would not pay tax at issuance, but later recognize taxable income when (1) the equity vests and (2) upon a future sale event. Both of these taxable events would occur when the value of the equity is likely higher and less gain may be captured at the potentially long-term capital gains tax rate.

An 83(b) election also gives the recipient more control over when ordinary income tax is recognized. The practical question is whether the recipient would rather pay tax at grant, when the equity value may be low, or later as the equity vests, when the value may have increased. If the equity has nominal value at issuance, filing an 83(b) election is often a sensible planning step. If the equity has significant value at grant, however, the recipient should consult tax and financial advisors to assess the immediate tax cost, likelihood of future appreciation, and the risks that the equity may decline in value or be subject to forfeiture.

Notably, an 83(b) election must be filed within 30 days of the grant date of the restricted equity. This is an absolute deadline and missing it cannot be cured.

Provided below is guidance for filing an 83(b) election. 

1. Confirm whether an 83(b) election is available and advisable. 
2. Confirm the date of transfer or grant and calculate the 30-day deadline – Do this immediately.
3. Gather the required information

1. Taxpayer information, including name, address, and SSN;
2. Description of the property;
3. The date the property was transferred;
4. Tax year of the election;
5. Description of the restrictions on the property (i.e. vesting schedule or repurchase rights);
6. FMV at time of issuance; and
7. Amount paid for the equity, if any.

4. Select your filing method

1. File by mail using a written election statement or Form 15620 with the IRS service center when the recipient files their federal income tax return.
   1. The election must be signed either in original ink or electronically.
   2. Include a cover letter requesting return receipt of a filed copy.
   3. Metz Lewis recommends filing by certified mail.
2. File online using IRS Form 15620 using an IRS Online Account.

5. Recipients should save a permanent record of their filed 83(b) election along with their equity documents and deliver a copy of the filing to the issuing company.

Recipients of restricted equity should contact their tax professionals to review any Section 83(b) election before filing with the IRS. 

Equity compensation is more than a retention tool—it is a critical component of growth strategy and executive planning. Whether you are issuing founder equity, executive compensation awards, or broader employee incentive grants, early planning can help avoid costly tax consequences later. Metz Lewis Attorneys, John Lewis and Allyson Kreps, regularly advise companies and management teams on the design and implementation of equity incentive arrangements tailored to their business objectives and workforce needs.

This content is for educational and informational purposes only. Nothing in this blog creates an attorney-client relationship or constitutes legal advice. Even where circumstances may appear similar, legal issues are highly fact-specific and readers should obtain advice tailored to their situation.

For employers navigating employment compliance issues, Neva Stotler and Annamarie Truckley provide practical, business-focused guidance.