Quick Definition

The 83(b) Election is a tax election made by employees or founders receiving restricted stock, allowing them to pay taxes on the total fair market value of the stock at the time of granting rather than as it vests.

Examples

• 1An employee receives 1,000 shares of restricted stock valued at $10 per share. By filing an 83(b) Election, they pay taxes on $10,000 immediately, potentially saving on taxes if the stock value increases significantly.
• 2A startup founder receives stock that vests over four years. They make an 83(b) Election to pay taxes upfront, betting that the company's value will rise, thus locking in a lower tax rate.
• 3An employee opts not to make an 83(b) Election, and as their stock vests and increases in value, they face higher tax liabilities each vesting period.

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