Employees or service providers who receive restricted or unvested property, such as employer stock, as compensation should consider making a Section 83(b) election online. A Section 83(b) election is used to accelerate the taxation for unvested property received as compensation.
The most common situation where we see it in Silicon Valley is when a nonqualified stock option has an early exercise privilege (isn’t vested). For example, when an employee exercises a nonqualified stock option that has an early exercise privilege doesn’t work a certain number of years, the unvested stock is forfeited back to the employer.
When a vested nonqualified stock option is exercised, the excess of the fair market value of the stock over the option price is taxed as ordinary compensation income. When a nonvested nonqualified stock option is exercised, the ordinary income event is when the stock vests. When a Section 83(b) election is made, the exercise is treated “as if” the stock was vested. The option holder makes the election because he or she expects the price of the stock to grow in the future.
Similar rules apply for restricted/nonvested stock grants, but not for restricted stock units (RSUs).
In addition, the holding period for the stock for qualification for long-term capital gains is generally measured from the later of the exercise date or the vesting date. Since a Section 83(b) election results in vesting being disregarded, the holding period when the election is made starts on the exercise date.
For incentive stock options, a Section 83(b) election is only effective for the alternative minimum tax. Incentive stock option benefits from holding the stock more than two years after the grant date and more than one year after exercise only apply for regular tax reporting, and the incentive stock option rules superscede Section 83 when an incentive stock option is exercised.
During April, 2025, the IRS issued new Form 15620 for making a Section 83(b) election. The election can still be made with alternative written election language.
According to the instructions for the paper Form 15620, the employee or service provider should “Submit this completed and signed Form 15620 to the IRS via mail with the IRS office with which the person who performs the services files a federal income tax return.”
The IRS also (quietly) allows Form 15620 to be submitted online using its idME portal. According to the instructions on the idME site, Form 15620 may be submitted “either online (preferred), or by mail, but not both.” The Section 83(b) election may only be submitted using Form 15620 when it is submitted online using the idME portal.
To my knowledge, the IRS has made no public announcement of this alternative.
Here is a link for the IRS’s “mobile-friendly form”. https://sa.www4.irs.gov/sso/?resumePath=%2Fas%2FVrqrwfUL7l%2Fresume%2Fas%2Fauthorization.ping&allowInteraction=true&reauth=false&connectionId=SADIPACLIENT&REF=562D2FBD6DA9FB112C7A28DE5C5C5E649FEA871229B1C0A674080000006F&vnd_pi_requested_resource=https%3A%2F%2Fsa.www4.irs.gov%2Fola%2Fforms%2Fnew%2Ff15620&vnd_pi_application_name=OLA
You need an IRS idME online account to file the form online and you can do it using the above URL if you don’t already have one.
An advantage of filing online is you are assured the IRS has received it and shouldn’t misplace it.
The IRS prefers electronic filing because it’s far more efficient for the IRS to process electronic forms. They call paper forms “kryptonite”.
To be effective, a Section 83(b) election must be filed within 30 days after the option is exercised or restricted/unvested stock is granted.
A signed copy of the election must also be submitted to the transferee of the property and the person/company for whom services were performed.
A Section 83(b) election is generally irrevocable — you can’t change your mind later.
Employees or service providers who receive a nonqualified stock option with an early exercise privilege or a restricted stock grant should consult with a tax advisor who knows these rules.
Tax advisors should alert their clients who issue or receive stock-based compensation of this choice for making a Section 83(b) election.