Section 83(b) Election: The 30-Day Window That Changes Your Tax Bill

When you receive unvested startup equity, you face an obscure but consequential choice: pay a small tax now on nearly worthless shares, or pay ordinary income tax later on shares that may be worth millions. The mechanism that lets you choose is the Section 83(b) election — and you have exactly 30 days from exercise or grant to use it.

What Section 83(b) actually does

By default, you owe ordinary income tax on restricted property (equity, options) when the restrictions lapse — that is, when shares vest. If you join a startup with a $0.01/share FMV today and your shares are worth $30 each when the final tranche vests in four years, you'll owe ordinary income tax on $29.99 per share at vesting. At a 37% marginal rate plus 3.8% NIIT, that's over 40 cents on every dollar of appreciation — taxed as earned income, not investment gains.

Section 83(b) lets you opt out of this default. By filing an election within 30 days of receiving restricted property, you agree to be taxed now on the current spread (often near zero), and then treat all future appreciation as capital gain — eligible for the lower long-term rate once you've held long enough.

The statutory authority is IRC § 83(b).¹ You make the election by filing IRS Form 15620 (introduced 2024) with the IRS service center where you file your federal return — or, since July 2025, electronically via IRS.gov using ID.me authentication.²

Three scenarios where this matters

1. Restricted stock grants (most common)

You join a seed-stage company and receive 500,000 shares outright, subject to a 4-year vesting cliff with 1-year cliff. The 83(b) election applies at grant, not at each vesting date.

On 500,000 shares growing from $0.01 to $30, the tax difference is roughly $2.5M versus $3M in federal tax alone — a $500K swing from one form filed in your first week.

2. Early-exercised ISOs (pre-IPO tech employees)

Many pre-IPO companies allow employees to "early exercise" their option grant — buying shares before they vest, typically at a low 409A FMV. The shares remain subject to a vesting schedule and a company repurchase right, making them restricted property under § 83.

Without an 83(b) election, as each tranche vests and the repurchase right lapses, the spread at that vesting date (FMV minus strike) becomes an AMT preference item. If FMV has increased from $2 to $25 per share by Series C, vesting 100,000 shares in a single year creates a $2.3M AMT preference item — potentially generating a six-figure AMT bill before you've sold a single share.

With an 83(b) election filed at the time of early exercise, you choose to be taxed at exercise — when the spread is often zero (you exercised at FMV). The shares are treated as held from exercise, not vesting. The AMT preference item at exercise is the spread on the day you file: typically $0. No AMT exposure flows from future vesting events.

3. Early-exercised NSOs

NSOs don't carry ISO's AMT advantage, but the 83(b) election still applies. Without it, each vesting event creates ordinary income equal to the spread at that date. With it, you pay ordinary income tax once at exercise on the spread that exists then (potentially small), and all future appreciation is capital gain.

The calculus is the same: smaller ordinary income now vs. larger ordinary income spread across vesting dates. Whether early-exercise makes sense depends on cash availability, company trajectory confidence, and AMT exposure in the ISO case.

When NOT to file an 83(b) election

The 83(b) election is powerful but not universally correct. Don't file when:

• The spread at exercise is large. If you're exercising options that are already deeply in the money, filing 83(b) means paying ordinary income tax on a substantial spread immediately. The math may not favor it compared to paying LTCG rates on the same amount later.
• The company is early and speculative. If there's real risk the shares are worth nothing in 4 years, you've paid tax upfront on equity that forfeits. The tax is not refundable if the shares are later forfeited due to unvested shares being repurchased — there is a forfeiture refund mechanism under § 83, but it only gives you a capital loss, not a refund of ordinary income tax paid. Model the downside carefully.
• You can't afford the exercise cost plus upfront tax. Don't stretch to exercise if the cash strain creates financial hardship. A financial mistake made to avoid a tax problem is still a financial mistake.
• Options are at or near FMV and you're unsure about the company. If the spread is minimal and confidence is low, the 83(b) provides limited benefit — wait and reassess.

The AMT dimension for ISOs

If you early-exercise ISOs and the spread at exercise is not zero, the spread still enters the AMT calculation — it's an AMT preference item at exercise. Filing 83(b) does not eliminate AMT exposure; it shifts when the exposure is measured. The goal is to time the exercise when the spread is small (ideally at grant, when the 409A is lowest).

For 2026, the AMT exemption is $90,100 (single filer) and $140,200 (married filing jointly). Exemptions phase out starting at $500,000 (single) and $1,000,000 (MFJ) at 50 cents per dollar of AMTI above those thresholds — a OBBBA change effective 2026 that tightened phaseout relative to 2025.³ Use the ISO AMT Calculator to model the exact AMT exposure on any early-exercise scenario before committing.

How to file the 83(b) election in 2026

1. Get IRS Form 15620. The IRS standardized 83(b) elections in 2024 by publishing Form 15620. Find it at irs.gov/pub/irs-pdf/f15620.pdf. You can also use the electronic filing option.
2. File electronically (fastest) or by mail. Since July 2025, you can complete and submit Form 15620 electronically at IRS.gov via your ID.me account.² If mailing: send to the IRS service center where you file your federal return; use certified mail and keep your postmarked receipt as proof.
3. Send a copy to your employer (or company). IRC § 83(b) requires a copy to the person for whom the services were performed — your employer. Do this the same day you file.
4. Keep records. Retain a copy of the filed election and confirmation indefinitely. The 30-day filing date may need to be proven years later if the IRS questions the basis or holding period of shares you've sold.

Interaction with QSBS (§ 1202)

If your startup shares could qualify for the QSBS exclusion under IRC § 1202, the 83(b) election is directly relevant to the 5-year holding period requirement.

Without 83(b): each tranche of restricted stock doesn't start its QSBS clock until it vests (when restrictions lapse). A share that vests in year 3 doesn't complete the 5-year QSBS hold until year 8.

With 83(b): the QSBS clock starts at the date of exercise for all shares simultaneously — the date the election is made is when you are treated as acquiring the stock. If you early-exercise 500,000 shares today and file 83(b), all 500,000 shares start their 5-year QSBS clock today, regardless of the underlying vesting schedule.

Post-OBBBA (July 2025), the QSBS exclusion caps at $15M of gain per taxpayer per issuer, with tiered rates based on holding period. This makes the early-exercise + 83(b) strategy potentially worth $2.4M+ in federal tax savings on qualifying gains. See the full QSBS guide for qualification rules.

Filing checklist

• Confirm the 30-day clock: what is the exact date of the grant, restricted stock issuance, or early exercise?
• Calculate the spread at grant/exercise date (FMV minus exercise price)
• Model AMT exposure if ISOs are involved — use the ISO AMT Calculator
• Check QSBS qualification: C corporation, under $50M in aggregate gross assets at issuance, active business⁵
• File Form 15620 electronically or by certified mail — do not wait for day 29
• Email a copy to your company's stock administrator or legal team
• Save confirmation receipt and a copy of the filed form