The 83(b) Election Explained: Deadline, Tax Math and Risks for Families at Pre-IPO Companies

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

An 83(b) election is a one-page statement you send the IRS, no later than 30 days after you receive unvested company stock, choosing to be taxed on that stock now instead of as it vests. You pay ordinary income tax today on the value of the shares minus what you paid for them, and all later growth is taxed as a capital gain when you sell. If you paid full fair market value, the income you report today is zero, which is why the election is most useful at early-stage companies where shares are cheap.

It is available for restricted stock and for options you exercise before they vest (early exercise). It is not available for RSUs, and you cannot make it on a stock option itself. Miss the 30 days and the choice is gone.

Who actually gets an 83(b) decision

Most of the families we work with are paid in RSUs at Apple, Amazon, Gilead or Genentech. RSUs never qualify. Under Treasury Regulation §1.83-3(e), an RSU is an unfunded promise to deliver shares later, not property, so there is nothing to elect on. RSUs are taxed as wages when the shares are delivered (see how RSU income is calculated). If someone tells you to “file an 83(b) for your RSUs,” the advice is wrong.

The decision shows up when one parent leaves for a pre-IPO company. Three common situations:

• Restricted stock purchase. An early employee buys common stock at the current 409A price, and the company can buy back unvested shares at cost if they leave.
• Early exercise of options. The option plan lets you exercise before vesting. You receive actual shares that are still subject to a vesting schedule. Those shares are restricted property, so 83(b) applies to them.
• Restricted stock award. The company grants shares outright, with vesting. Electing means paying tax on the full value now, since you paid nothing.

IRS Publication 525 is explicit that the election cannot be made for a statutory or nonstatutory stock option itself. That is the honest answer to “83(b) election stock options”: you elect on the shares you get from exercising early, not on the option grant.

How restricted stock is taxed with and without the election

The basis and forfeiture rules come from Pub 525 and Treas. Reg. §1.83-2; the holding period rule is in Treas. Reg. §1.83-4(a). The election cannot be revoked without IRS consent, which Pub 525 says is given only for a mistake of fact about the underlying transaction.

Worked example: a $900k Bay Area household with an early-exercise offer

Assumptions (illustrative, not a forecast): Maya is a scientist who joins a pre-IPO biotech in South San Francisco. Her husband stays at a large pharma company. Household W-2 income is about $900,000, filing jointly in California, two kids ages 4 and 7. Maya receives nonqualified options on 100,000 shares at a $1.00 strike, equal to the current 409A value, with early exercise allowed. To keep the math readable, the shares vest 25% a year for four years. She can sell five years from now at $20 a share.

Path A: early exercise and file the 83(b)

• Cash out of pocket today: 100,000 x $1.00 = $100,000.
• Income reported on the election: value $1.00 minus price $1.00 = $0. No tax due now.
• At sale: ($20 minus $1) x 100,000 = $1,900,000 of long-term capital gain.

Path B: early exercise, no election

Each vest is taxed as wages on the value at that date minus $1.00. Suppose the 409A value at the four vests is $4, $8, $12 and $20:

• Year 1: $3 x 25,000 = $75,000
• Year 2: $7 x 25,000 = $175,000
• Year 3: $11 x 25,000 = $275,000
• Year 4: $19 x 25,000 = $475,000

That is $1,000,000 of extra wage income, taxed in years when the shares usually cannot be sold. The remaining $900,000 of growth is capital gain at sale. Not exercising until vest and then exercising each tranche lands in roughly the same place for an NSO: the spread at exercise is wage income.

What the election changes for this household

The election converts that $1,000,000 from wages to long-term capital gain. For a couple already above the 37% bracket, which starts at $768,700 of taxable income for 2026 (Rev. Proc. 2025-32):

• Federal, as wages: 37% income tax plus 1.45% Medicare plus 0.9% Additional Medicare Tax = 39.35%.
• Federal, as long-term gain: 20% plus 3.8% Net Investment Income Tax = 23.8%.
• Difference: 15.55% x $1,000,000 = about $155,500 in federal tax.
• California: the election saves no California income tax, because California has no lower rate for capital gains. If anything, stacking the whole gain into the sale year can push more of it into the top tiers (12.3% on joint taxable income over $1,485,906 on the 2025 schedule, plus the 1% Behavioral Health Services Tax over $1,000,000, per the FTB 2025 rate schedules). The one clear difference is SDI, 1.3% of wages for 2026 with no cap (EDD): about $13,000 avoided.

Rough total for the California family: about $168,500 less federal tax and SDI (before any California bracket effect from bunching), plus no tax bills on illiquid stock in years one through four. This assumes Maya sells more than a year after the last vest and that she stays long enough to vest.

Why Washington families run the numbers differently

Washington has no wage income tax for 2026 (WA DOR), but it does tax long-term capital gains at 7%, rising to 9.9% on taxable gains above $1,000,000, after a standard deduction that was $278,000 for 2025 (WA DOR capital gains tax). So the 83(b) moves income out of a category Washington does not tax (wages) and into one it does. If Maya’s family lived in Bellevue and had no other gains that year, using the 2025 deduction: with the election, $1,900,000 minus $278,000 leaves $1,622,000 of taxable gain, taxed 7% on the first $1,000,000 ($70,000) and 9.9% on the remaining $622,000 ($61,578), or $131,578. Without it, $900,000 minus $278,000 leaves $622,000 at 7%, or $43,540. The election adds about $88,000 of Washington tax, offsetting part of the $155,500 federal benefit. Washington has also enacted a 9.9% income tax on AGI over $1,000,000 starting in 2028, with the details still pending DOR guidance, so a multi-year vesting schedule in Washington needs a fresh look each year.

The risks that decide whether to file

• The cash can be lost. If the company fails, Maya’s $100,000 becomes a capital loss. For a household that also carries a Bay Area mortgage and private school tuition, ask whether losing that sum would change any plan for the kids.
• Tax paid on a spread is not refundable. If the 409A value has already risen to $3 when she early-exercises at $1, the election puts $200,000 of wage income on this year’s return, roughly half of it going to federal and California tax at this income level. If she leaves before vesting and forfeits, that tax stays paid. Only the $100,000 she paid for the shares counts as a loss.
• Value can fall. A down round can leave you having paid tax on a price the stock never sees again.
• The deadline is absolute in practice. Pub 525 gives 30 days from the transfer date and describes no extension. Work back from the date on the exercise or stock purchase agreement, not the date you remember signing.

The election tends to make sense when the spread is zero or small, the purchase price is an amount the family could lose without changing its plans, and the parent expects to stay through vesting. It tends not to make sense when the spread is large or the cash would come from the emergency fund. For a concentrated bet like this, see how we think about concentration and investment risk.

ISOs and early exercise: the AMT angle

With incentive stock options, exercising does not create regular income tax, but the spread counts for the alternative minimum tax. IRC §56(b)(3) switches off the ISO exclusion (section 421) for AMT purposes, so the general section 83 rules govern ISO stock for AMT, and an 83(b) election on early-exercised ISO shares fixes the AMT measurement at exercise. With zero spread, that can mean no AMT adjustment as the shares vest. To keep ISO treatment on a sale, the shares must be held at least two years from grant and one year from exercise (IRC §422(a)(1)). ISO math interacts with your other income, so model it with your CPA before you exercise. Our note on tax on cashless exercise covers the later stage, once options are vested.

How to file the 83(b) election

1. Get the exercise or purchase agreement and confirm the transfer date, number of shares, price paid and the fair market value on that date.
2. Prepare the statement or IRS Form 15620. Pub 525 requires your name, address and TIN; a description of the property; the transfer date and tax year; the restrictions; the fair market value at transfer; the amount you paid; and a statement that copies went to the right people. Sign it. Our walk-through on drafting the 83(b) letter shows the layout.
3. Mail it within 30 days of the transfer to the IRS Service Center where you file your return. Pub 525 points to the address listed for your state under “Are requesting a refund or are not enclosing a check or money order” in the Form 1040 instructions. Use certified mail with a return receipt so you can prove the date.
4. Give a copy to your employer. Pub 525 and Treas. Reg. §1.83-2 both require it.
5. Keep the stamped receipt and a copy with your permanent tax records. A buyer’s diligence team, or the IRS, may ask for it years later.

What to write down for your kids

An early-exercise decision is a clean example of how you weigh risk: real cash put into a company you believed in, a deadline, and a choice made before anyone knew the outcome. Record the price, what you paid, why you chose to file or not, and what you would do differently. Whether the stock works or not, that note teaches more than the brokerage statement will. The family governance work we do is built around capturing decisions like this one.

Common questions

Can I file an 83(b) election for RSUs?

No. RSUs are a promise to deliver shares later, not property, so section 83(b) does not reach them. You are taxed on the shares’ value as wages when they are delivered, with 22% federal supplemental withholding (37% on supplemental wages over $1,000,000 in a year) for 2026 per IRS Publication 15. At a 37% bracket, that withholding usually leaves a balance due in April.

What happens if I miss the 30-day deadline?

The default rules apply: you are taxed on each tranche as it vests, on its value at vest minus what you paid. Pub 525 describes no extension of the 30 days, so treat the date as fixed. If you are close to the deadline, file immediately and talk to a CPA about anything that went wrong with the timing.

Do I need to attach the 83(b) to my tax return?

No. Treas. Reg. §1.83-2 requires filing the statement with the IRS and giving a copy to your employer; it does not require attaching a copy to your return. The filing that counts is the statement or Form 15620 mailed to the IRS within 30 days, plus the copy to your employer. Keep proof of mailing with your records, because the election is what sets your basis and holding period when you eventually sell.

Next step

If one of you has an early-exercise or restricted stock offer, pull the agreement and mark the 30-day date today, then run both paths with your real numbers. That is part of what we cover in a Tax & Wealth Assessment through our tax management service.

This is general education, and the right move depends on the family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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