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83(b) Election

An 83(b) election is a U.S. tax filing that lets a recipient of restricted stock be taxed on its value at grant rather than at vesting.

What Is an 83(b) Election?

An 83(b) election is a tax filing under Section 83 of the U.S. Internal Revenue Code. It allows a person who receives restricted stock to choose to be taxed when the shares are granted instead of when they vest. Without the election, restricted property is generally taxed as ordinary income at vesting, based on its value at that time. The election moves the taxable event earlier, so later increases in value may be treated as capital gains tax when the shares are sold.

How It Works

The election must be filed with the Internal Revenue Service within 30 days after the property is transferred to the recipient. A copy is generally also provided to the company that issued the shares. The amount taxed is the fair market value of the shares on the grant date, minus any amount the recipient paid for them. That value becomes the cost basis for future sales, so later gains are measured from it.

The election is most often considered when shares are worth little at grant, such as early in a company's life, because the tax is calculated on that lower value.

Example

Suppose a person receives 1,000 shares of restricted stock that are worth $0.10 each on the grant date and are paid for at $0. The shares are subject to a multi-year vesting schedule. With an 83(b) election, the taxable amount is $100 at grant. If the shares later rise in value and are sold, the increase after grant is generally taxed as a capital gain rather than as ordinary income at each vesting date. Without the election, tax would be based on the higher value at vesting.

Risks and Trade-Offs

The main risk is that the shares may never vest or may lose value. If the shares are later forfeited, for example after the recipient leaves the company before vesting, the tax already paid is generally not refunded. If the value falls below the grant-date value, the recipient may have paid tax on value that no longer exists. The election also requires paying tax before any cash is received from a sale. It generally cannot be revoked without IRS consent.

Updated October 14, 2026. For general education only; not financial, tax or legal advice.

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Related Terms

Restricted Stock

Restricted stock is company stock granted to an employee or other recipient that cannot be sold or transferred until certain conditions, usually continued service or performance goals, are met.

Ordinary Income

Ordinary income is money an individual earns that is taxed at regular income tax rates rather than at the lower preferential rates that apply to certain investment gains.

Capital Gains Tax

A capital gains tax is a tax on the profit made when an asset, such as a stock, bond, or property, is sold for more than its original purchase price.

Fair Market Value (FMV)

The estimated price at which property would change hands between a willing buyer and a willing seller, both acting freely and knowing the relevant facts, with neither under pressure to trade.

Cost Basis

Cost basis is the original value of an asset for tax purposes, usually its purchase price plus certain costs, used to work out the capital gain or loss when the asset is sold.

Vesting

Vesting is the process by which an employee or other recipient earns full ownership of equity or retirement benefits over time, typically by remaining with the employer for a set period.