Restricted founder stock is taxed as it vests — unless you file an 83(b) election within 30 days of grant, locking in tax at near-zero value. How to file and when not to.
If you've just received restricted stock in a startup — as a founder, early employee, or advisor — you have 30 days from the grant date to file an 83(b) election with the IRS. File it, and you're taxed once, now, on the stock's current value, which at formation is usually close to zero. Skip it, and you're taxed on the stock's value as each tranche vests, at ordinary income rates, on a valuation you hope will be rocketing upward. The deadline is absolute: 30 days, no extensions, no relief for good excuses.
Few one-page filings in the tax code move as much money as this one. This post explains the default rule, what the election changes, exactly how to file, and the situations where filing is actually the wrong move. It's part of our broader equity compensation tax guide — and if you're at the company-formation stage where 83(b) decisions usually arise, the choices interlock with how you incorporate your startup.
Restricted stock — shares subject to vesting, typically with the company able to repurchase unvested shares if you leave — isn't taxed when you receive it, because you could still forfeit it. Under the default rule of Section 83, each portion is taxed as compensation income when it vests, at its fair market value on that vesting date.
For a successful startup, that default is brutal. Say a founder gets 2,000,000 shares at incorporation worth $0.0001 each — $200 total — vesting monthly over four years. Two years in, a strong Series A values the shares at $1.50. Every month from then on, the founder recognizes tens of thousands of dollars of ordinary W-2-style income — roughly $62,500 per month at that price — on shares they can't sell, with the amounts growing at every up round. The tax bill is real and current; the wealth is paper and illiquid.
The 83(b) election says: tax me now, on the full grant, at today's value — and then leave me alone. Consequences:
The 30 days is the whole game. Miss it and there is no do-over, no reasonable-cause relief, no private letter ruling to rescue you — the default vest-by-vest regime applies for the life of the grant.
The election is a bet that pays off when current value is low and the stock will be worth more. It's the wrong bet in a few recognizable situations:
One scope note: 83(b) elections apply to restricted stock — property that's transferred to you. Standard RSUs can't take an 83(b) election, because no stock is transferred until vest; startup employees with double-trigger RSUs face a completely different event, covered in our post on what happens to RSU taxes at IPO. Option holders meet the concept when they early-exercise unvested shares — filing an 83(b) on the exercised stock — which pairs with the AMT analysis in our ISO exercise guide.
A practical note for co-founding teams: file individually, and confirm each other's filings. Every founder's 30-day clock runs from their own stock purchase date, and one missed election in a founding team creates a lopsided tax situation that no later paperwork can equalize. Make the election part of the incorporation checklist itself, signed and mailed the same week the stock purchase agreements are.
File the 83(b) when the value is a rounding error and the upside is the whole company. Thirty days, certified mail, keep the receipt forever.
For founders buying their shares at formation, the 83(b) election is close to a reflex: near-zero cost today in exchange for capital-gain treatment, a grant-date holding period, and an early-running QSBS clock on everything after. The decision gets genuinely harder only when current value or forfeiture risk is high — and the deadline is unforgiving either way. Taxagon handles 83(b) elections as part of entity setup and founder equity planning — if you're forming a company or just signed a restricted stock agreement, our business formation team can make sure the 30-day window doesn't close on you.
This article is general information, not tax advice for your specific situation. Tax law changes; figures are for the years stated.
Talk it through with a licensed US tax professional — we'll tell you honestly whether it applies to your situation.
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