What Is Form 83(b)? Tax at Grant vs. Tax When It Vests

Someone on Reddit got a promotion and was granted stock as part of compensation; their manager suggested filing Form 83(b). They were confused: does 83(b) mean tax now, and not filing mean tax when you sell? They were also worried that filing 83(b) would mean paying additional taxes for the next 4 years, and they have student debt and cannot afford extra payments. Form 83(b) is an election to be taxed in the year of grant on the fair market value at grant (once). Without 83(b), you are taxed when the stock vests (ordinary income at each vesting date), not only when you sell. Filing 83(b) does not mean paying for the next 4 years; you pay once in the year of grant.

Bottom line: Form 83(b) lets you elect to be taxed in the year of grant on the FMV of the property at grant (ordinary income), once. You do not pay ordinary income again when it vests. Without 83(b), you are taxed when it vests (e.g., income in years 1, 2, 3, 4 as shares vest), not only when you sell; when you sell you also have capital gain on appreciation after vesting. So the choice is tax at grant (once) vs. tax as it vests (over the vesting period). Filing 83(b) does not mean "additional taxes for the next 4 years"; you pay sooner (one lump in the year of grant). You must file the election within 30 days of the transfer. For your specific grant and cash flow, consult a tax professional.

Question from Reddit

IRS Form 83B?

Discussion

At work I was given a promotion and got granted stocks as part of the compensation. My manager suggested I file a 83B but I don't know anything about taxes as this is the first time I've ever been given grants.

From my internet search, my understanding is the 83B taxes you now vs not filing the 83B taxes you if you sell the stocks (????). If that's the case, I guess it would make sense to file the 83B but would that mean I would pay additional taxes for the next 4 years during tax season? That would be my concern as I have some school debt to pay off and can't really afford to acrue additional payments in my day to day life.

Source: Reddit

Analysis

The user received restricted stock (or similar property) as part of a promotion and was told to consider Form 83(b). They are confused about: (1) When they are taxed, now (at grant) vs. when they sell, if they file vs. don't file 83(b). (2) Whether filing 83(b) means paying extra tax "for the next 4 years." Form 83(b) applies to restricted property (e.g., restricted stock) that is subject to substantial risk of forfeiture and that vests over time. The election shifts when you recognize ordinary income, at grant (if you file 83(b)) or at vest (if you don't). It does not mean you are taxed when you sell if you don't file; you are taxed when it vests (e.g., over a 4-year schedule). And if you do file 83(b), you pay tax once in the year of grant on the grant value, not "for the next 4 years."

Answer

What Form 83(b) is for

Form 83(b) is an election under IRC § 83(b). It applies when you receive property (e.g., restricted stock) that is subject to substantial risk of forfeiture, meaning you don't fully own it until it vests (e.g., over a 4-year schedule).
If you do not file 83(b): You are not taxed at grant. You are taxed when the stock vests. Each time a portion vests, you have ordinary income equal to the fair market value (FMV) of that portion on the vesting date. So over 4 years of vesting, you would have income in each of those years as shares vest. When you later sell the stock, you pay capital gains tax on the appreciation after vesting (sale price minus FMV at vesting).
If you do file 83(b): You elect to be taxed in the year of grant on the FMV of the property at grant (as ordinary income). You pay that tax once, in the year you receive the grant (and you must file the election within 30 days of the transfer). After that, vesting does not trigger more ordinary income on that stock. When you later sell, you pay capital gains tax on the entire appreciation (sale price minus FMV at grant), which can be long-term if you hold long enough.

So: tax "now" vs. "when you sell"?

Your search result was a bit off. The choice is not "83(b) = tax now vs. no 83(b) = tax when you sell."
Without 83(b): You are taxed when it vests (e.g., income in years 1, 2, 3, 4 as shares vest), not only when you sell. When you sell, you also have capital gain on appreciation after vesting.
With 83(b): You are taxed once at grant (in the year of grant) on the grant value. You do not pay ordinary income again when it vests. When you sell, you pay capital gains on the full gain from grant to sale.

Do you pay "additional taxes for the next 4 years" if you file 83(b)?

No. If you file 83(b), you pay ordinary income tax once, in the year of grant, on the FMV at grant. You do not pay extra ordinary income "for the next 4 years" because of the 83(b) election. The 4 years is usually your vesting schedule. Without 83(b) you would pay tax as it vests over those 4 years. With 83(b) you front-load the tax into year 1 (the year of grant). So your concern, "would I pay additional taxes for the next 4 years?," is the opposite: with 83(b) you pay sooner (one lump in the year of grant), and without 83(b) you would pay over the 4 years as it vests.

Cash flow and when 83(b) makes sense

Filing 83(b) can be good if: (1) The FMV at grant is low (e.g., early-stage company or low price), and (2) You expect the stock to appreciate a lot by vesting, so you lock in a smaller amount as ordinary income and the rest becomes capital gain (often long-term).
Downside: You need to pay the tax in the year of grant (on the grant value). If you have student debt and limited cash, that one-time tax hit can be hard. If you don't file 83(b), tax is spread over the vesting years (but if the stock goes up, each vesting date has higher FMV = more ordinary income over time).
Risk: If you file 83(b) and the stock goes down or you forfeit the shares (e.g., you leave before vesting), you cannot get a refund of the tax you paid on the grant value; you may have a capital loss when you forfeit or sell, but the ordinary income tax you paid at grant is not recovered the same way.

What to do

Confirm with your employer (or the plan document) that what you received is restricted stock (or similar property) that is subject to substantial risk of forfeiture and that an 83(b) election is allowed. Stock options (e.g., NQSOs, ISOs) are not 83(b) property; 83(b) is for restricted stock (or restricted property).
If it is restricted stock and you want to file 83(b), you must file the election with the IRS within 30 days of the date of transfer (usually the grant date). You also send a copy to your employer.
Model the tax: (1) Tax now (year of grant) if you file 83(b) vs. (2) Tax over 4 years (at each vest) if you don't, and the total amount of ordinary income in each case. Margen can help you compare 83(b) vs. no 83(b) so you see the cash flow and total tax.
Consult a tax professional (or your employer's tax/benefits team) so you understand your exact grant (restricted stock vs. options), the 30-day deadline, and whether 83(b) fits your cash flow and risk (e.g., forfeiture).

Applicable Sections

Federal / IRS

IRC § 83(b): Election to include property in gross income in year of transfer. If you receive restricted property (e.g., restricted stock) subject to substantial risk of forfeiture, you can elect to include the FMV at grant in income in the year of transfer. You must file the election within 30 days of the transfer. (IRS Form 83(b); see instructions.)
IRC § 83(a): Default: If you don't file 83(b), you include the FMV of the property when it vests (when the risk of forfeiture lapses) in income in that year.
Publication 525: Taxable and Nontaxable Income; discusses restricted property and Section 83(b). (IRS Publication 525)

Practical Notes

83(b) = tax at grant (once, in the year of grant) on FMV at grant. No 83(b) = tax when it vests (e.g., over 4 years) on FMV at each vest.
Filing 83(b) does not mean paying extra tax "for the next 4 years"; you pay once in the year of grant.
83(b) is for restricted stock (or similar restricted property), not for stock options.
Deadline: 30 days from the date of transfer (grant).
Cash flow: 83(b) = lump tax in year of grant; no 83(b) = tax spread over vesting years (but more total ordinary income if stock goes up).
Margen can help you model 83(b) vs. no 83(b) so you see tax and cash flow.
Consult a tax professional (or employer benefits) for your specific grant and deadline.

Limitations

This answer does not cover state tax, forfeiture rules, or employer plan details. It is not tax or legal advice. For your specific grant (restricted stock vs. options), 30-day deadline, and cash flow, consult a tax professional. Margen can help you model the tax before or after you decide.

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What Is Form 83(b)? Tax at Grant vs. Tax When It Vests (Reddit Q&A)