83(b) election explained: tax timing, equity types, and key risks
The 83(b) election often comes up unexpectedly, and it is really about timing, not whether equity is taxed. When shares are issued before vesting, this filing can change when income is recognized, sometimes with meaningful upside and real risk.
Understanding when an 83(b) election applies, and when it does not, helps prevent costly and irreversible mistakes.
What an 83(b) Election Actually Does:
An 83(b) election comes into play when you receive actual shares that are still subject to vesting or repurchase. In those situations, the tax system has to decide when that equity counts as compensation income.
By default, income is generally recognized over time as shares vest, based on their value at each vesting date.
An 83(b) election lets you choose to recognize that income up front, based on the value when the shares are first issued.
When people say “taxed” here, they do not mean you sold anything. They mean the IRS may treat part of your equity as compensation income, even if:
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Your shares have not fully vested
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You have not sold any shares
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You have not received cash from the equity
The first filter: Do you actually have shares yet?
This question clears up most confusion.
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No shares yet: an 83(b) election is typically not relevant
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Shares now, vesting later: this is where 83(b) can apply
Because of this, 83(b) elections most commonly arise with:
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Restricted Stock Awards (RSAs), where shares are issued up front and vest over time
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Early-exercised stock options, where you exercise before full vesting and receive shares subject to repurchase or forfeiture
If you need clarity on restricted stock types, see RSAs vs RSUs.
RSAs: why 83(b) commonly shows up here
With an RSA, you usually receive actual shares at grant, but the company can take unvested shares back if you leave before vesting.
At a high level:
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Without an 83(b) election:
Income is commonly recognized as shares vest, based on their value at each vesting date -
With an 83(b) election:
You choose to recognize that income up front, based on the value when the shares are issued
This can significantly change both timing and total tax exposure.
Stock Options: Vesting Is Usually Not the Tax Event
For stock options, vesting generally means you have earned the right to exercise. Vesting itself is typically not the tax moment.
The tax conversation usually starts at exercise, when you pay to buy shares.
For the full timeline view, see When Are Stock Options Taxed?
ISOs vs NSOs and 83(b)
At a high level:
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NSOs:
Exercise often creates ordinary income based on the difference between what you pay and what the shares are worth -
ISOs:
Exercise may avoid ordinary income under the regular tax system, but the spread can still count for AMT under a separate tax system
Important clarification:
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Filing an 83(b) election does not automatically eliminate AMT for ISOs.
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AMT follows its own rules.
For deeper context, see How ISOs Are Taxed and How NSOs Are Taxed.
Where 83(b) fits with options (early exercise only)
An 83(b) election generally comes up with options only in early-exercise situations.
This requires both of the following:
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You exercise before options are fully vested
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You receive shares that the company can still take back if you leave
In that “shares now, vest later” structure:
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Without an 83(b) election:
Income is commonly recognized as shares vest, based on value at each vesting date -
With an 83(b) election:
You choose to recognize income at exercise, based on value at that time
Capital gains: a benefit people often overlook
Another reason people consider an 83(b) election is holding-period timing.
At a high level:
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Filing an 83(b) election can cause the long-term capital gains holding period to start earlier
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Without it, the holding period may effectively start as shares vest
This can matter significantly if the company grows in value over time.
Key risks (why it’s not a default move):
An 83(b) election is not automatically “smart.” It is one tool, not the strategy.
Common risks include:
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Paying tax on something you might not keep
If you leave before vesting and shares are forfeited or repurchased, the election generally cannot be undone -
Tax liability without liquidity
Early-stage equity can look valuable on paper and still be illiquid -
Valuation uncertainty
Options often rely on a 409A valuation, and restricted stock valuation can be nuanced. The goal is a reasonable, defensible value based on the documents
The deadline (why people get burned):
An 83(b) election generally must be filed within 30 days of receiving the shares.
This deadline is tied to:
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The transfer date in the agreement
It is not tied to:
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Your start date
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When you noticed the clause
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When someone finally explained it
If the deadline is missed, the opportunity is usually gone. There are no extensions and no do-overs.
How to think about the decision:
A practical way to frame the decision is to ask:
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What did you actually receive, shares now or later?
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Are the shares subject to vesting or repurchase?
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What is the current value and potential tax impact, including any AMT considerations in ISO contexts?
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How comfortable are you with the downside if things do not work out?
Common questions:
What is an 83(b) election?
An 83(b) election is a tax-timing election that determines whether certain equity is taxed now or later, typically as ordinary income.
Does an 83(b) election apply to RSUs?
Generally no. RSUs are a promise to deliver shares later, not shares issued up front.
Does an 83(b) election apply to stock options?
Generally only in early-exercise situations where you receive shares that are still subject to vesting or repurchase.
Does filing an 83(b) election eliminate AMT for ISOs?
No. AMT is a separate tax system, and an 83(b) election does not automatically eliminate AMT exposure.
What happens if you miss the 83(b) deadline?
For that grant, the opportunity is usually gone. There are no extensions and no do-overs.
To Discuss your Equity Compensation and Wealth Management Needs:
Arc Element Wealth Design is a Nebraska-registered investment adviser. This material is provided for general educational and informational purposes only and does not constitute individualized financial, legal, or tax advice. Examples are simplified and may not reflect your specific circumstances. Investing involves risk. For full disclosures, visit: Disclosures