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83(b) Elections: Why and When to File
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83(b) Election: Tax Benefits, Why and When to File
You could save on taxes through an 83(b) election by paying tax on company shares upon granting instead of vesting.
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19 years of experience Expertise Retirement planning investment management investment accountsArielle O’Shea leads the investing and taxes team at NerdWallet. She has covered personal finance and investing for nearly 20 years, and was a senior writer and spokesperson at NerdWallet before becoming an editor. Previously, she was a researcher and reporter for leading personal finance journalist and author Jean Chatzky, a role that included developing financial education programs, interviewing subject matter experts and helping to produce television and radio segments. Arielle has appeared on the "Today" show, NBC News and ABC's "World News Tonight," and has been quoted in national publications including The New York Times, MarketWatch and Bloomberg News. She is based in Charlottesville, Virginia.
Arielle O’Shea leads the investing and taxes team at NerdWallet. She has covered personal finance and investing for nearly 20 years, and was a senior writer and spokesperson at NerdWallet before becoming an editor. Previously, she was a researcher and reporter for leading personal finance journalist and author Jean Chatzky, a role that included developing financial education programs, interviewing subject matter experts and helping to produce television and radio segments. Arielle has appeared on the "Today" show, NBC News and ABC's "World News Tonight," and has been quoted in national publications including The New York Times, MarketWatch and Bloomberg News. She is based in Charlottesville, Virginia. Published in Head of Content, Investing & Taxes + more + more What is an 83(b) election? What is an 83(b) election? How the 83(b) election works How the 83(b) election works Why to file an 83(b) election Why to file an 83(b) election Disadvantages of an 83(b) election Disadvantages of an 83(b) election When and how to file an 83(b) election When and how to file an 83(b) electionIf you are receiving stock options or other forms of equity compensation at work, the 83(b) election might help you minimize your tax outlay.
If you are receiving stock options or other forms of equity compensation at work, the 83(b) election might help you minimize your tax outlay.What is an 83(b) election?
What is an 83(b) election?An 83(b) election is a way to pay tax on the value of company stock options or restricted stock when they are granted rather than when they vest. The strategy makes more of the gains subject to capital gains tax instead of ordinary income tax, which can reduce the total tax on the shares over time
An 83(b) election is a way to pay tax on the value of company stock options or restricted stock when they are granted rather than when they vest. The strategy makes more of the gains subject to capital gains tax instead of ordinary income tax, which can reduce the total tax on the shares over time IRS.gov. Section 83(b) Election. Accessed Jul 23, 2025. .» Not sure if an 83(b) election is right for you? Here’s how to find a financial advisor who can help
» Not sure if an 83(b) election is right for you? » Not sure if an 83(b) election is right for you? Here’s how to find a financial advisor who can helpNerdWallet Wealth Partners created a free calculator to estimate your financial independence number, see where you stand, and find out how much you might need to close the gap.
FIND OUT NOWNWWP is an SEC-registered investment adviser. Registration does not imply skill or training. The calculator is provided for informational and educational purposes only.
NWWP is an SEC-registered investment adviser. Registration does not imply skill or training. The calculator is provided for informational and educational purposes only.How the 83(b) election works
How the 83(b) election worksMaking an 83(b) election means that you pay income tax earlier, often before your shares have had the opportunity to appreciate in value. If and when you sell shares for a profit down the road, the 83(b) election typically means the bulk of the profits are subject to capital gains tax rates instead of ordinary income taxes, which are usually higher.
Making an 83(b) election means that you pay income tax earlier, often before your shares have had the opportunity to appreciate in value. If and when you sell shares for a profit down the road, the 83(b) election typically means the bulk of the profits are subject to capital gains tax rates capital gains tax rates instead of ordinary income taxes ordinary income taxes , which are usually higher.For example, if you’re in the 24% tax bracket and part of your employer’s equity compensation package includes a grant of 10,000 shares of company stock that are worth $.01 per share at the time of grant, you could save money by making an 83(b) election. The example below shows what could happen if the share value rises to $5.00 per share at the time of vesting and $20.00 per share if you sold the shares more than one year after they vested.
For example, if you’re in the 24% tax bracket and part of your employer’s equity compensation package includes a grant of 10,000 shares of company stock that are worth $.01 per share at the time of grant, you could save money by making an 83(b) election. The example below shows what could happen if the share value rises to $5.00 per share at the time of vesting and $20.00 per share if you sold the shares more than one year after they vested.83(b) election
83(b) election
83(b) electionNo 83(b) election
No 83(b) election
No 83(b) electionIncome tax paid when shares granted
Income tax paid when shares granted$24 ($0.01 x 10,000 shares x 24% tax bracket)
$24 ($0.01 x 10,000 shares x 24% tax bracket)$0
$0Income tax at vesting
Income tax at vesting$0
$0$12,000 ($5 x 10,000 shares x 24% tax bracket)
$12,000 ($5 x 10,000 shares x 24% tax bracket)Capital gains tax when shares are sold
Capital gains tax when shares are sold$39,980 ($19.99 x 10,000 shares x 20% capital gains tax rate). Note that you already paid tax on $0.01 of each $20 share when the shares were granted (tax applies to the remaining $19.99 here).
$39,980 ($19.99 x 10,000 shares x 20% capital gains tax rate). Note that you already paid tax on $0.01 of each $20 share when the shares were granted (tax applies to the remaining $19.99 here).$30,000 ($15 x 10,000 shares x 20% capital gains tax rate). Note that you already paid tax on $5 of each $20 share when the shares vested (tax applies to the remaining $15 here).
$30,000 ($15 x 10,000 shares x 20% capital gains tax rate). Note that you already paid tax on $5 of each $20 share when the shares vested (tax applies to the remaining $15 here).Total tax paid
Total tax paid$40,004
$40,004$42,000
$42,000Holding shares for over a year prior to selling means you’d pay the more favorable long-term capital gains tax rates instead of the ordinary income tax rate on much of the gains. Filing an 83(b) also means you can start the holding period clock earlier, right after the grant date so capital gains can become eligible for the lower long-term capital gains tax rate
Holding shares for over a year prior to selling means you’d pay the more favorable long-term capital gains tax rates instead of the ordinary income tax rate on much of the gains. Filing an 83(b) also means you can start the holding period clock earlier, right after the grant date so capital gains can become eligible for the lower long-term capital gains tax rate IRS.gov. Topic no. 409, Capital gains and losses. Accessed Jul 23, 2025. . 🤓 Nerdy TipKey terms:
Key terms:The grant date is the date on which you receive a company restricted stock award or stock option award.
The grant date The grant date is the date on which you receive a company restricted stock award or stock option stock option award.The vesting date is the date on which you can take actual ownership of the company shares or stock options, usually by satisfying a certain time period of employment.
The vesting date The vesting date is the date on which you can take actual ownership of the company shares or stock options, usually by satisfying a certain time period of employment.The sale date is the date on which you sell the shares.
The sale date The sale date is the date on which you sell the shares.Ordinary income tax is the rate at which wages and most other income is taxed. It ranges from 10% to 37%.
Ordinary income tax Ordinary income tax is the rate at which wages and most other income is taxed. It ranges from 10% to 37%.Capital gains tax is a tax on profits from the sale of shares or other investments. Long-term capital gains tax is either 0%, 15% or 20%; short-term capital gains tax rates are the same as ordinary income tax rates.
Capital gains tax Capital gains tax is a tax on profits from the sale of shares or other investments. Long-term capital gains tax is either 0%, 15% or 20%; short-term capital gains tax rates are the same as ordinary income tax rates.» MORE: Check out our guide to employee equity compensation
» MORE: » MORE: Check out our guide to employee equity compensationNerdWallet Wealth Partners created a free calculator to estimate your financial independence number, see where you stand, and find out how much you might need to close the gap.
FIND OUT NOWNWWP is an SEC-registered investment adviser. Registration does not imply skill or training. The calculator is provided for informational and educational purposes only.
NWWP is an SEC-registered investment adviser. Registration does not imply skill or training. The calculator is provided for informational and educational purposes only.Why to file an 83(b) election
Why to file an 83(b) electionThe 83(b) election can come in handy if you expect to stay with your company for the long term (since you’ll need to wait until your shares vest in order to gain actual ownership of them), and if you expect the value of your company shares to grow over time.
The 83(b) election can come in handy if you expect to stay with your company for the long term (since you’ll need to wait until your shares vest in order to gain actual ownership of them), and if you expect the value of your company shares to grow over time.Two situations are particularly common in 83(b) elections.
Two situations are particularly common in 83(b) elections.Stock option holders: If you’re able to exercise your stock options early (prior to vesting), you could elect to do so and file an 83(b) election within 30 days of exercise. This way, you can potentially minimize your future tax liability if the share price of your company happens to take off
Stock option holders: Stock option holders: If you’re able to exercise your stock options early (prior to vesting), you could elect to do so and file an 83(b) election within 30 days of exercise. This way, you can potentially minimize your future tax liability if the share price of your company happens to take off National Association of Stock Plan Professionals. Early Exercise Understanding Early Exercise and 83(b) Elections. Accessed Jul 23, 2025. .Startup founders: In some companies, particularly startups, compensation may include a significant amount of restricted stock (not to be confused with restricted stock units or RSUs). Restricted stock refers to company shares that are subject to certain stipulations, such as vesting and/or forfeiture (losing your shares if you leave the company). Key employees may be awarded a handsome quantity of restricted shares that could significantly increase in value from granting to vesting. Using the 83(b) election allows these employees the chance to save by shifting their tax treatment from ordinary income taxes to capital gains taxes.
Startup founders: Startup founders: In some companies, particularly startups, compensation may include a significant amount of restricted stock (not to be confused with restricted stock units or RSUs restricted stock units or RSUs ). Restricted stock refers to company shares that are subject to certain stipulations, such as vesting and/or forfeiture (losing your shares if you leave the company). Key employees may be awarded a handsome quantity of restricted shares that could significantly increase in value from granting to vesting. Using the 83(b) election allows these employees the chance to save by shifting their tax treatment from ordinary income taxes to capital gains taxes.» MORE: What to know about deferred compensation
» MORE: » MORE: What to know about deferred compensationDisadvantages of an 83(b) election
Disadvantages of an 83(b) electionMust be done early. It is critical to remember to file your 83(b) election within 30 days of the restricted share grant or within 30 days of exercising your options early. Also, filing an 83(b) election is usually irreversible, so be sure you consult with a financial advisor if needed and settle on your tax strategy early
Must be done early. Must be done early. It is critical to remember to file your 83(b) election within 30 days of the restricted share grant or within 30 days of exercising your options early. Also, filing an 83(b) election is usually irreversible, so be sure you consult with a financial advisor if needed and settle on your tax strategy early Cornell Law School Legal Information Institute. 26 CFR § 1.83-2 - Election to include in gross income in year of transfer. Accessed Jul 23, 2025. .Requires a tax payment. As the table above illustrates, an 83(b) election may require you to pay a portion of your tax bill sooner than if you didn’t make the election.
Requires a tax payment. Requires a tax payment. As the table above illustrates, an 83(b) election may require you to pay a portion of your tax bill sooner than if you didn’t make the election.Could backfire if you leave the company. You could end up prepaying taxes on shares you never end up owning if you part ways with your company before they vest, or if the value of those shares decreases instead.
Could backfire if you leave the company. Could backfire if you leave the company. You could end up prepaying taxes on shares you never end up owning if you part ways with your company before they vest, or if the value of those shares decreases instead.» MORE: How ESOPs and ESPPs work
» MORE: » MORE: How ESOPs and ESPPs workWhen and how to file an 83(b) election
When and how to file an 83(b) electionThe process itself is fairly straightforward. Essentially, the employee completes and signs an IRS Section 83(b) form or letter that details certain key information
The process itself is fairly straightforward. Essentially, the employee completes and signs an IRS Section 83(b) form or letter that details certain key information IRS.gov. Update to the 2024 Publication 525 for Section 83(b) election. Accessed Jul 23, 2025. :Personal identifying information (name, address, Social Security number).
Personal identifying information (name, address, Social Security number).Description of the property awarded (number and type of shares of which company) along with the date received or purchased, any restrictions your shares are subject to and the fair market value of the shares on the date received or purchased.
Description of the property awarded (number and type of shares of which company) along with the date received or purchased, any restrictions your shares are subject to and the fair market value of the shares on the date received or purchased.The amount paid for the company shares.
The amount paid for the company shares.The amount the employee will indicate as gross income on their income tax return.
The amount the employee will indicate as gross income on their income tax return.The employee mails the election form or letter to their IRS Service Center and provides a copy to their employer.
The employee mails the election form or letter to their IRS Service Center and provides a copy to their employer.Best practice is to send your election form through certified mail with a return receipt in case you need to prove that it was sent by a particular date.
Best practice is to send your election form through certified mail with a return receipt in case you need to prove that it was sent by a particular date.IRS 83(b) election form
IRS 83(b) election form» Want a second opinion? See if a wealth advisor is useful for you
» Want a second opinion? » Want a second opinion? See if a wealth advisor wealth advisor is useful for youHelpful resources
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