83(b) Election on Restricted Stock: $37,000 Now or $370,000 at Vesting

Day 30 and the grant-date tax bill

You have 30 days from the grant (transfer) date to file. The income you report is what the shares were worth at grant, less anything you paid for them. Say 200,000 shares are worth $0.50 each and you pay $0: that's $100,000 of ordinary income now.

In plain words: with the election, that income is taxed as ordinary compensation at grant, later growth is capital gain, and your holding period starts at grant. Without it, the full value of the shares on each vesting date is ordinary income.

If the 30th day lands on a weekend or legal holiday, the deadline moves to the next business day. Don't plan around that. Treat the grant date as day 0 and count from there.

If you paid full fair market value for the shares, the election reports $0 of income. Filing then costs nothing in tax and mainly protects you from a large ordinary-income hit at vesting.

Kwame's grant if the shares rise, fall or never vest

Hypothetical: Kwame, 44, is a divorced general counsel who just joined a biotech company. His grant notice lists 200,000 restricted shares vesting in four years, fair market value $0.50 a share, purchase price $0. Filing means $100,000 of ordinary income now. At an assumed 37% federal rate (for illustration, state and payroll taxes ignored), that's $37,000.

Up case: the shares reach $5 at vesting. Without the election, 200,000 x $5 = $1,000,000 of income at vest and $370,000 of tax. With it, nothing is due at vest, and the $900,000 rise is taxed later as capital gain if he sells more than a year after the grant. Against the $37,000 he prepaid at grant, that's $333,000 less ordinary income tax, before the capital gains tax he'll owe when he sells.

Down case: the price falls to $0.20, so the shares are worth $40,000. The election cost $37,000 on shares worth $40,000. Without it, he'd have owed 200,000 x $0.20 = $40,000 of income, or $14,800 in tax. After the election, his $60,000 capital loss ($100,000 basis minus $40,000) offsets other gains and only $3,000 a year of ordinary income.

Forfeiture case: if he leaves before year 4, the $37,000 is gone. He gets no deduction for income he reported, only a capital loss for any amount he actually paid, which here is $0.

Compare the 'Vesting' row in the table. That's where the two paths split by $333,000 of federal income tax in the up case. A calculator on this site can rerun the arithmetic with your own share count and price.

The up case

The down and forfeiture cases

Is the 83(b) bet sensible when you already hold $900,000 of company stock?

Only if the $37,000 is money you can lose and the filing doesn't push your concentration beyond what you can tolerate. Kwame gives up a certain $37,000 now for a possible $333,000 saving later. The payoff rests on one private company's price, which no one can forecast reliably.

Mariner Wealth Advisors doesn't guess the stock's direction. Before suggesting a filing, it writes down the grant-date tax, the worst-case loss and how much of Kwame's net worth already sits in biotech shares. His $900,000 of unsold vested stock from his old employer counts toward that last figure.

We'd rather Kwame fund the $37,000 from cash than by selling diversified holdings, because the election already adds concentration. If he sells some old vested shares to pay it, that sale carries its own capital gains tax, so estimate both bills.

Who should accept the bet: people with a low grant-date value, a plan to stay through vesting and cash outside the company to cover the tax. Who shouldn't: anyone for whom losing $37,000 would delay a child's tuition or drain the emergency reserve.

All investing carries risk. A private company's shares can fall to zero, taking both the shares and the tax you prepaid.

Should you file if you might leave before the shares vest?

Probably not, unless the tax is small enough to lose outright. The election is irrevocable without IRS consent, the tax paid is sunk, and a forfeiture returns nothing. Leaving early is the exact case where prepaying hurts most.

Health is one risk. A serious illness that forces Kwame out in year 2 forfeits unvested shares under most award agreements. Check the agreement for disability or death acceleration before filing.

Law is the other. The election locks in ordinary-income tax today in exchange for capital-gain treatment years later. Congress can change capital gains rates in between, so the saving in any example isn't fixed.

Leave room for a bad year. Size the tax so a total loss still leaves at least six months of household spending in cash. For Kwame, with two children and shared custody costs, that cushion is not optional.

Two filing slips that usually travel together

Assuming HR files the election and mailing it with no proof tend to arrive as a pair. The employee is responsible for filing, and many employers only send a reminder. Regular post leaves no record if the IRS has none.

If the IRS has no record, a certified-mail receipt is the only evidence the election was made on time. An election that can't be proven is treated as never filed. In Kwame's case he'd face $1,000,000 of ordinary income at vest instead of $100,000 at grant, about $333,000 more federal tax at 37%.

Mail it certified with return receipt within days of the grant. Keep the receipt and a dated copy for good, and hand your employer its own copy for the payroll file.

The paperwork rules since 2016 and Form 15620

Since 2016, IRS regulations no longer require attaching a copy of the election to your tax return. That removed an old barrier for people who e-file.

In late 2024 the IRS published Form 15620 as an optional standard form for the election. Before that, filers drafted their own signed statement, which is still allowed.

If you made plans earlier and relied only on a copy attached to an old return, locate the original certified-mail receipt or IRS acknowledgment and store it with the award agreement. Brokers and auditors can ask for proof years later, at sale.

We won't quote other procedural changes here. Check the current IRS instructions for the filing address and any electronic option.

Filing an 83(b) election, in the order you'd do it

Eight steps cover it, and the first four are analysis. The rule of thumb: file only if you'd be comfortable losing the entire grant-date tax. If you paid full fair market value, the election reports no income and is usually worth filing. The election rarely pays off for restricted stock in a large public company, where grant-date value is already high, and it can't be used for RSUs at all. This article leaves out state taxes and the early-exercise and AMT questions that come with stock options. For other equity awards, see our equity compensation advice.

Steps 1 to 4: analysis

Steps 5 to 8: filing and follow-up

• Confirm the award is restricted stock (shares issued now, subject to vesting). RSUs are a promise of future shares and aren't eligible.
• Read the fair market value and purchase price on the grant notice. Ask the company for its valuation if the notice doesn't state it.
• Compute the income (value minus price paid), the tax at your marginal rate and the worst-case loss.
• Decide, and write down why, against the rule above.
• Complete Form 15620 or a signed statement, and mail it certified to the IRS office where you file, within 30 days of the grant date.
• Give a copy to your employer.
• Ask payroll how the income will be withheld. If too little is, plan an estimated tax payment so the grant-date income doesn't add to an April balance.
• File the receipt and copy with the award agreement.

Bringing an 83(b) decision to Mariner Wealth Advisors

Talk to Mariner Wealth Advisors the week the grant notice arrives, because the 30-day window leaves little time for analysis. Bring the grant notice, the restricted stock award agreement, the company's latest valuation if you have it, a recent pay stub and a list of every employer share you already own, vested or not.