- Filing an 83(b) election: What every founder needs to know
- What is an 83(b) election?
- Why file an 83(b) election?
- How an 83(b) election is taxed
- With an 83(b) election
- Without an 83(b) election
- An 83(b) election tax calculation example
- What are the risks of filing an 83(b) election?
- What types of equity are eligible for an 83(b) election?
- Restricted stock awards (RSA)
- ISOs and NSOs: Early-exercised stock options
- Profits interests in an LLC
- How to file an 83(b) election
- Step 1: Get your grant details
- Step 2: Complete and sign the form
- Step 3: File with the IRS
- Step 4: Distribute and store your copies
- Get expert help when you need it
- Frequently asked questions about the 83(b) election
What is an 83(b) election?
An 83(b) election is a provision under Section 83(b) of the Internal Revenue Code (IRC) that lets recipients of restricted stock pay taxes based on the stock’s fair market value (FMV) on the date the stock was received, rather than the date it vests. The election is especially valuable for founders, employees, and advisors at high-growth startups, where share values are expected to appreciate before vesting. This provision only applies to equity that is subject to a substantial risk of forfeiture, meaning it is subject to vesting.
The Internal Revenue Service (IRS) typically taxes restricted stock when it vests. Filing an 83(b) election locks in your tax obligations on the grant date instead. To receive favorable tax treatment, you must file an 83(b) election form with the IRS within 30 days of the issuance date.
You are choosing to pay a small tax bill now to potentially avoid a much larger one later. Without this election, you would be subject to the default rules for how stock options are taxed as your stock vests over time.
Note: This information is a general overview of how the 83(b) election works. Talk to a tax advisor before making decisions about whether to file.
Why file an 83(b) election?
The main reason to file an 83(b) election is the potential for significant tax savings. Depending on your situation, the difference could range from tens to even hundreds of thousands of dollars.
When a company grants you an equity award, you usually can't exercise the award until it vests. If you have a typical four-year vesting schedule, the value of your equity may increase significantly over that time. By the time you can exercise, you could owe much higher taxes because of the increased value.
But some companies allow employees to exercise their equity early, before it vests and while the value is lower, creating the opportunity for meaningful tax savings. If your company offers early exercising and you purchase your equity before it vests, you must inform the IRS by filing an 83(b) election. Otherwise, you will be taxed as your options vest, when the value could be higher, rather than all at once at grant. The 83(b) election lets you choose when to pay that income tax.
The stakes for early-stage equity holders are growing. Median initial equity grants issued to individual contributors at companies on Carta are up nearly 11% over the past two years. Larger grants mean larger potential tax exposure, which makes the 83(b) election even more valuable for early employees and founders.
Two types of tax matter here:
Ordinary income tax is the employment tax you pay on your salary, typically at a higher rate.
Capital gains tax is the tax you pay on profits from investments. The long-term rate is usually lower than the ordinary income tax rate.
For restricted stock and NSOs, filing an 83(b) election allows you to pay ordinary income taxes on the value of the stock when you acquire it, with any subsequent increase in value treated as a capital gain. Note that for ISOs, the tax treatment is different, as early exercise may still trigger alternative minimum tax (AMT) depending on your individual income situation.
Acquiring the shares also starts the clock on your holding period. This matters for two reasons. First, for NSOs and restricted stock, you generally need to hold the stock for more than a year after exercise to qualify for long-term capital gains rates. For ISOs, you must hold the stock for at least two years from the grant date and one year from the exercise date to qualify for long-term capital gains treatment. Second, it starts the clock for qualified small business stock (QSBS), a powerful tax incentive that allows eligible taxpayers to exclude up to $15 million or 10x basis (whichever is greater) in gains from federal tax if they meet the requirements.
How an 83(b) election is taxed
The table below shows how the two paths play out for a typical founder scenario.
With an 83(b) election | Without an 83(b) election |
You pay tax based on the stock's value at the grant date | You pay no tax at the grant date |
You pay no additional tax as your shares vest | You pay ordinary income tax (or AMT if you hold ISOs) based on the value of your shares each time a portion vests |
When you sell your shares, your profit is treated as a capital gain | When you sell your shares, your profit is treated as a capital gain. For NSOs, your cost basis is higher, reducing the gain. For ISOs, your cost basis is always the strike price. |
With an 83(b) election
When you file an 83(b) election, you recognize the value of all your unvested shares as taxable income in the calendar year they are granted. The amount paid for shares of restricted stock will typically equal the FMV of the shares when you acquired them, so the upfront tax is minimal or zero.
You won't owe anything at future vesting dates, even as the company's value climbs.
Without an 83(b) election
If you don't file an 83(b) election, you pay tax with each vesting milestone. As a portion of your shares vests, the difference between the amount you paid to acquire the shares and the FMV of those shares at the time of vesting is counted as ordinary income for that taxable year.
This creates a phantom income problem: you owe real taxes on income that is still locked up in private company stock, which you likely cannot sell to cover the tax bill. This financial risk is significant.
As explained during Carta’s Equity Compensation: Three Essentials You're Not Thinking About webinar, this taxable event happens at every single vesting date, creating an ongoing tax liability as the company's value increases.
An 83(b) election tax calculation example
Suppose you are a founder granted 1,000,000 shares of restricted stock at an FMV of $0.001 per share. Four years later, when your shares fully vest, the FMV has increased to $2.00 per share.
With an 83(b) election:
At grant, you recognize $1,000 in ordinary income (1,000,000 shares x $0.001).
Your approximate federal tax at grant is around $370 (at a 37% ordinary income rate).
At vesting, you owe nothing more. The appreciation is not taxed until you sell.
When you sell, the gain above $0.001 per share is taxed at the long-term capital gains rate (as low as 20%), assuming you have held the shares for more than one year.
Without an 83(b) election:
At grant, you owe nothing.
At vesting, you recognize $1,999,000 in ordinary income (1,000,000 shares x ($2.00 - $0.001)).
Your approximate federal tax at vesting is around $740,000 (at a 37% ordinary income rate).
You owe this tax on phantom income—a large bill with no liquid way to pay it if the company is still private.
The difference: Filing the 83(b) election in this scenario saves you roughly $740,000 in ordinary income tax at vesting and converts future appreciation into lower-rate capital gains. The upfront cost is approximately $370.
What are the risks of filing an 83(b) election?
Filing an 83(b) election is a bet on your company's future success, and it's not without risk. While it's often a smart move for founders, you should understand the potential tax consequences and downsides before you file.
You may pay tax on stock you might forfeit: If you leave your company before your shares are fully vested, you lose the unvested shares. While you will often not owe tax on the filing of an 83(b) election if you acquired the shares for the same price as their current FMV, the risk could be significant if you paid taxes at a higher value.
You pay tax on stock that might lose value: If the company's value goes down or it fails entirely, you will have paid tax on stock that is now worthless. The IRS does not provide a refund in this situation. This is a real risk, given that people often overestimate the value of their equity.
Because of these risks, consulting a personal tax advisor is always a good idea. They can help you understand how this decision fits into your specific financial situation.
What types of equity are eligible for an 83(b) election?
The 83(b) election applies to restricted property, like stock, that is transferred in connection with the performance of services and is subject to vesting. Here are the most common eligible equity types.
Restricted stock awards (RSA)
Founders and very early-stage employees may receive restricted stock awards (RSA). These shares are considered restricted because they cannot be freely transferred or traded, allowing the company to stay in compliance with securities laws. RSAs are the most common type of equity for which founders file an 83(b) election.
The value of RSAs can vary based on the company's FMV, but they're typically issued at a nominal value, such as $0.001 or $0.0001 per share. If you file an 83(b) election when you receive your RSAs, you're likely to have minimal tax liability because you're recognizing a spread of zero or near zero as ordinary income tax up front. When you eventually sell these shares, you'll be subject to capital gains tax on the difference in FMV at the time of sale.
Without an 83(b) election, the spread between the FMV of the shares at each point of vesting and your purchase price would be subject to ordinary income tax rates, which are higher than capital gains.
Because these shares are often granted when the company has a very low valuation, the upfront tax from an 83(b) filing is often zero or very small. In most cases, this makes it a straightforward decision for many founders.
ISOs and NSOs: Early-exercised stock options
Some companies offer a feature called early exercise. With these two types of stock options, you'll file an 83(b) election if you decide to exercise your options early, before they're fully vested. The 83(b) election is filed for the shares you purchase through early exercise, not for the stock options themselves.
When you file, you're accelerating the recognition of the spread between the strike price of your options and their FMV. This means you won't pay taxes on any potential rise in that spread as your shares continue to vest over time. If you don't file the election, you face the potential for a large tax bill in the future.
If you have early-exercised incentive stock options (ISO) when you file an 83(b) election, the spread between the FMV and your exercise price is included as income for the alternative minimum tax (AMT). Without an 83(b) election, you may have to pay AMT on the spread at each vesting tranche, instead of the spread at the time of early exercise. This could trigger AMT or lead to a higher AMT obligation.
If you have non-qualified stock options (NSO), that same spread is considered income. Not filing an 83(b) election means you could be subject to a higher income tax rate if the FMV increases as your early-exercised options vest.
With both option types, if you hold your shares for a period of time before selling, you may qualify for lower capital gains tax rates. The earlier you exercise and hold your shares, the sooner those holding period requirements start.
If you don't early exercise, an 83(b) election is not applicable to your options. For companies that do offer it, early exercise can be a powerful benefit. As Carl Olson, senior director of finance and administration at Luminary Cloud, notes, "Most people have never heard of QSBS or early exercise, so we wanted an easier way to educate our employees on how they worked and to help them understand that these benefits could have a significant impact on the value they got from their equity."
"Carta made it so we can give early exercise to 60 employees, which is unheard of. Normally, you just give it to executives. But because we could e-sign and submit 83(b) elections through Carta and pair that with tax advice, it made it an easy decision.”
- Eric Mogil, Chief Growth Officer, RADAR.
Profits interests in an LLC
Profits interest units (PIU) are a form of equity common in a limited liability company (LLC) or limited liability partnership (LLP). PIUs give the holder a right to a portion of the future value, typically of future profits or a sale, of the company under certain restrictions.
Filing an 83(b) election for PIU is a standard and highly recommended practice. Most LLCs require 83(b) elections to preserve the favorable tax status of profits interests. If PIUs are issued with an FMV of $0, the recipient won't pay taxes at the time this election is made. If an 83(b) election is not filed within 30 days, the award could be taxed upon vesting, before the holder begins to realize any value.
Because LLC equity can be complex, Carta's Equity Management for LLCs platform handles the specific needs of PIU, including tracking and reporting, which simplifies life for the company's finance team.
How to file an 83(b) election
To receive preferential tax treatment, your 83(b) election form must be filed with the IRS within 30 days of the date of your restricted stock grant or the date of your early exercise. This deadline is strict: There are no extensions or exceptions. If you miss it, you lose the opportunity to make the election for that grant, and you will be taxed on the value of your shares as they vest.
The grant date is the day the board approves the grant, which can be days or even weeks before you receive the official paperwork. This creates a very short window to act. A missed deadline can also create tax withholding complications for the issuing company. An accurate, professionally managed cap table is your best safeguard here, providing a single source of truth for grant dates so there is no confusion about when the 30-day clock starts.
The IRS accepts filings online or by mail. Once you have your grant details, the process is straightforward.
Step 1: Get your grant details
To complete the form, you’ll need your name, address, and taxpayer identification number (TIN), along with the grant date, number and type of shares, the stock's FMV, and the amount you paid for it.
If your company uses Carta for cap table management, your portfolio organizes all of this information in one place. The company's 409A valuation determines the FMV; Carta's 409A services help thousands of companies stay compliant.
Step 2: Complete and sign the form
The IRS provides Form 15620, which you can complete either online through the IRS website or by downloading and filling it out on paper. Many people also use a standard letter template provided by their law firm. While the 83(b) is an employee-side filing, companies have their own reporting obligations, such as issuing a Form 3921 to employees who exercise ISOs.
When you fill out the form, you'll need to provide the following information:
Name
Address
Social Security Number (SSN)
Number of shares
Type of shares
Issuing company name
Date granted or purchased
FMV on the above date
Amount paid for shares
Your gross income
After you fill out the form with your grant details, sign it. If you plan to file by mail, make at least three copies: one to send to the IRS, one for your company's records, and one to keep for your own personal tax files.
Step 3: File with the IRS
This is the most time-sensitive step. Your election must reach the IRS within 30 days of your grant date. You have two options.
Option 1: File online (recommended)
You can now file Form 15620 electronically through the IRS website. To do so, you need an IRS Login account, which uses ID.me for identity verification. Online filing offers several advantages: You receive immediate confirmation that the IRS has received your election, and you can download or print a copy for your records. This eliminates the risk of mail delays and removes the need for certified mail.
Option 2: File by mail
Mail the original completed and signed election form, along with a cover letter and one copy of the 83(b) election form, to the IRS Center where you would otherwise file your income tax return. Include a self-addressed stamped return envelope so the IRS can send back a date-stamped copy.
Use certified mail with a return receipt requested. This receipt is your official proof that you filed on time. Write the certified mail number on your cover letter. Keep this receipt with your copy of the election form, as it can be important if the IRS ever questions your filing.
→ Learn more about filing 83(b) elections on Carta's Support site.
Step 4: Distribute and store your copies
Whether you file online or by mail, provide a copy of the signed election to your company. This documentation is important for compliance with securities regulations like Rule 144. Store your personal copy and any confirmation receipts in a safe place.
Get expert help when you need it
Tax planning around equity is rarely simple. Consulting a personal tax advisor is always a good idea.
For companies that want to provide this support to their whole team, services like Carta's Equity Advisory can help. This service offers one-on-one sessions with tax experts, part of a broader set of equity and tax education resources that help employees make sense of their equity. For Eric Mogil at RADAR, providing this resource is a clear win: "For every single startup I advise, I tell them to use Carta. It's a no-brainer."
To see how Carta can help you and your team maximize potential tax savings like the QSBS exclusion, request a demo today.
Frequently asked questions about the 83(b) election
Do I need to file an 83(b) for fully vested stock?
No. An 83(b) election is only for property that is unvested at the time of grant. Fully vested stock is taxed as ordinary income at grant by default.
Can I file an 83(b) election online?
Yes. The IRS now allows electronic filing of Form 15620 through its website. You need an IRS Login/ID.me account to file electronically. Online filing provides immediate confirmation of receipt—so you know immediately when it was received.
Can I cancel an 83(b) election?
No. The 83(b) election is irrevocable once filed. This is why it's a decision that requires careful thought and, ideally, advice from a tax professional.
Can I file an 83(b) election for RSUs?
No. Restricted stock units (RSU) are not restricted property transferred at the time of grant. RSUs are a promise to deliver stock in the future, so the 83(b) election does not apply. You are taxed on RSUs when they vest and the shares are delivered.
Do I need to file an 83(b) election for my SAFE?
No. A Simple Agreement for Future Equity (SAFE) is a contract, not stock. An 83(b) election may apply later to the shares you receive from the SAFE conversion, but only if those shares are subject to a vesting schedule.
Can you file an 83(b) election for stock options?
You cannot file an 83(b) election for the grant of a stock option itself, whether it's an ISO or an NSO. You can only file it for the shares of stock you receive when you exercise that option, and only if you exercise before the shares have vested.
Is an 83(b) election required for LLC profits interests?
The IRS doesn't explicitly require it, but filing an 83(b) election for profits interests is the universal best practice. It simplifies tax season when the company files its Form 1065 and protects the favorable tax treatment of your equity.
Can you file an 83(b) election late?
No. The 30-day deadline is strict and cannot be extended for any reason. If you postmark your filing after the deadline, the IRS will consider it invalid.
DISCLOSURE: This communication is on behalf of eShares, Inc. dba Carta, Inc. ("Carta"). This communication is for informational purposes only, and contains general information only. Carta is not, by means of this communication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. © 2026 Carta. All rights reserved. Reproduction prohibited.
