---
title: "What Is 83(b) Election?"
term: "83(b) Election"
description: "An 83(b) election is a tax filing that lets you pay income tax on restricted stock at grant based on today's value, instead of at vesting when the value may be much higher."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["equity", "regulation"]
source: https://venturecapitaltracker.com/glossary/83b-election
---

# What Is 83(b) Election?

> An 83(b) election is a tax filing that lets you pay income tax on restricted stock at grant based on today's value, instead of at vesting when the value may be much higher.

An **83(b) election** is a one-time IRS filing that taxes restricted stock at grant-date value rather than at each vesting date.

## How it works

When founders receive stock subject to vesting, the default tax rule treats each vesting chunk as compensation income at fair market value on that date. File an 83(b) election within 30 days of the grant (no extensions) and you instead recognize income immediately on the full grant—usually when the stock is still cheap.

You mail or e-file the election, keep proof of receipt, and give a copy to your employer or company. The company does not file for you. If the company fails later, you already paid tax on value you may never realize—but if the company succeeds, you avoided taxing millions of dollars of vesting income as ordinary wages.

## Why it matters

- **Founders:** Almost standard advice for founder shares at incorporation when value is nominal. The 30-day window is brutal; calendar it the day counsel drafts the grant.
- **Operators:** Early employees with restricted stock—not options—face the same choice. Options do not use 83(b); restricted stock awards do.
- **Investors:** Cap table diligence sometimes asks for copies of founder 83(b)s to confirm clean tax history.

## Common mistake

Confusing stock options with restricted stock. ISOs and NSOs have different tax rules; 83(b) applies to stock you own subject to vesting, not to unexercised options. Another classic error: missing the 30-day deadline because the company was "too busy" incorporating.

## Related ideas

Restricted stock, vesting schedules, [409A valuation](/glossary/409a), and capital gains holding periods.

## FAQ

### What is an 83(b) election in simple terms?

It is a letter you send the IRS within 30 days of receiving restricted stock, choosing to be taxed now on the current fair market value rather than when shares vest. If the stock is worth little at grant, your upfront tax can be small.

### Why does an 83(b) election matter?

Founders who skip it may owe ordinary income tax on each vesting tranche at future, higher valuations—sometimes without cash to pay. Filing 83(b) early can convert future appreciation into capital gains treatment if you hold the shares long enough.


---
Source: https://venturecapitaltracker.com/glossary/83b-election