If you’ve received restricted stock, you have 30 days from the grant date to file an 83(b) election with the IRS. Missing this deadline can cause major tax issues down the road, and the IRS generally will not accept late filings. Still, there are some ways to help lessen the financial impact.
Failure to timely file an 83(b) election means you will be taxed at ordinary income rates on the fair market value (FMV) of your stock when it vests, rather than at the time of the grant. This can lead to:
You can’t file an 83(b) election after the 30-day deadline, but there are a few options that might help mitigate the lost opportunity:
If you think you missed the election, first check that the restricted stock was actually issued and that the 30-day window has really passed. Review your grant agreement carefully. Sometimes, the grant depends on an event that didn’t happen or happened later than planned. For example, you might have needed to pay a small amount for the stock but didn’t, or the board’s approval was delayed. In these cases, you could take the position that the stock was not officially issued and could be reissued now. If the stock is re-granted, the company must use its current valuation, and the 30-day period to file the 83(b) election starts over.
You and the company could agree to exchange your unvested shares for a new and different restricted stock grant at the current FMV, and then you can file an 83(b) election in regard to the new grant. The higher FMV of the new grant would be taxed currently at ordinary income tax rates, but future appreciation would be taxed at lower capital gain rates because of the 83(b) election. This strategy is not without tax risk, so make sure to work with strong legal and tax advisors to clear all the tax and regulatory hurdles.
This method removes a lot of risk because the company pays the full value if it buys back the shares, so there’s no need for an 83(b) election. However, investors may have concerns, and employees may have less reason to stay if they retain unvested shares upon leaving or if the company has to repurchase them at a high price.
Allowing employees to transfer unvested stock, even if they don’t actually transfer it, can create a tax bill based on the FMV of the stock at the time of the change. This speeds up taxation, as with an 83(b) election or early vesting, and removes the need for an 83(b) election. The main retention incentives and vesting rules can stay in place, and the company can set penalties equal to the value of unvested shares if someone leaves early. Doing this, along with a new Section 409A valuation, can help lower the tax impact.
The 83(b) election is a great way to lower future taxes on equity compensation, especially for early-stage startups. If you miss the deadline, act quickly and talk to a tax advisor about your options. While there’s no perfect solution, some strategies can help reduce long-term taxes and keep the right equity incentives intact.
Connect with our Founders and Tech Executive Services Team to explore smart, compliant ways to recover from a missed 83(b) election.
For years, S corporations have been the entity of choice for many closely held businesses. The structure offers pass-through taxation, generally avoids a second layer of tax and provides operational flexibility. But as founders of S corporations begin planning for a future sale, many discover one of the most powerful tax incentives available to business…
For many startup companies, innovation comes long before profitability. While early-stage businesses often invest heavily in software development, product design, engineering or process improvement, they may have little or no federal income tax liability against which to utilize valuable tax credits. Recognizing this challenge, Congress created a special provision that allows startup companies to monetize…
In digital health, valuation is often treated as a technical requirement-something performed for compliance, reporting, or transaction support. For CFOs, however, valuation is most valuable when it functions as a recurring operating discipline: a structured way to understand risk, test assumptions, and inform decisions under uncertainty. Used correctly, valuation does not simply answer questions of…
