If you have stock options, the 83(b) election is the tax formality that makes your early exercise official to the IRS.

If you have RSUs, the 83(b) election is what you file to the IRS if you want to be taxed immediately when you are granted the RSUs rather than when they vest in the future.

You must file an 83(b) election with the IRS within 30 days.

If you have stock options and want to get the full picture of how they work, read our Stock Option Starter Guide.

How do I file an 83(b) election?

  1. Fill out an election form and cover letter. Find a 83(b) election template online, or ask your accountant or advisor to populate one for you. 
  2. Make three copies of the signed election form.
  3. Send the signed election form and cover letter to your appropriate IRS office which you can find on the IRS website. Make sure to mail the envelope via certified mail and request a return receipt.
  4. Send a signed election form to your company.
  5. Keep the last signed election form with the return receipt for your personal records. 

You must do all of this within 30 days of early exercising your stock options or having been granted your RSUs.

Don’t wait on this. A timely filing can mean the difference between paying nothing versus a huge and unexpected tax bill down the road.

Why would I want to early exercise my stock options?

Because it could minimize your stock option tax bill and keep the upfront costs of exercising low. To learn more, see What is early exercising? 

Why would I want my RSUs to be taxed when I am granted them rather than when they vest?

Because it could minimize your RSU tax bill.

At the moment of taxation, what’s considered income is the current 409a valuation of your RSUs. If your startup performs as expected, the 409a valuation of company shares grows over time. This means that getting RSUs taxed when you are granted them would result in a lower tax bill than when they vest several years later.

Note, however, that the 409a valuation of your company may also decline, in which case it would have been better to wait for vesting. Additionally, should you leave the company before some of the RSUs vest, you won’t get back the tax you already paid for.

What does the 83(b) election mean technically?

The name refers to a provision under section 83(b) of the tax code that allows you to elect being taxed on your equity compensation today versus when it vests. 

By filing a 83(b) election, you can pay tax on the 409A valuation of company shares today versus their 409A valuation in the future, which will likely be greater. The 409A valuation is re-evaluated every once in a while, and grows when your company becomes more successful. 

Hope that was helpful
Ready for personalized equity insights?
Create your free account.
Enjoying
this guide?

Enter your email and we’ll let you know when we add the next Equity Academy guide.