TL;DR (Too Long; Didn't Read)
The Clock is Ticking: You have exactly 30 days from the date of your equity grant to file. There are no extensions and no "excuse" clauses for missing it.
Tax the Growth, Not the Exit: An 83(b) election allows you to pay taxes on the value of your shares today (usually negligible) rather than when they vest at a potentially massive valuation.
Holding Period Hack: Filing the election starts your one-year clock for Long-Term Capital Gains immediately, potentially saving you an additional 15–20% in taxes on the back end.
The Symptoms
You just landed a role at a promising early-stage startup. Your offer includes 100,000 Restricted Stock Awards (RSAs). You’ve signed the documents, set up your direct deposit, and you’re already three sprints deep into the product roadmap.
Somewhere in your onboarding email, there was a mention of an "83(b) Election." You glanced at it, saw it involved the IRS and a trip to the post office, and decided to "handle it later." After all, your shares don't even start vesting for 12 months.
Here is the reality: If you wait until those shares vest to think about taxes, you might have already lost a life-changing amount of money. For tech workers, the 83(b) is the difference between a "nice bonus" and "generational wealth."
The Technical Deep Dive (The "Why")
Standard IRS rules dictate that you are taxed when your shares vest. If your shares vest over four years, the IRS looks at the Fair Market Value (FMV) of the stock on each vesting date and taxes that "gain" as ordinary income.
Scenario A: Without an 83(b) Election
Year 0: You receive 50,000 shares at a $0.10 FMV. No tax due.
Year 2: 25,000 shares vest. The company is doing well; the FMV is now $10.00.
The Tax Bill: The IRS sees this as $250,000 in income. Even though you haven't sold a single share and have no liquidity, you owe federal and state income taxes (potentially 35%+) on that $250k. You might have to sell shares (if possible) or dip into savings to pay a $90,000 tax bill.
Scenario B: With an 83(b) Election
Year 0: Within 30 days of your grant, you file an 83(b) election. You tell the IRS: "I want to be taxed on all 50,000 shares today at the $0.10 price."
The Tax Bill: You pay tax on $5,000 of "income." If you bought the shares at cost, your tax bill is $0.
Year 2: 25,000 shares vest at a $10.00 FMV. You owe $0. Because you already "paid" your taxes at the $0.10 price, all future growth is treated as Capital Gains, not Ordinary Income.
The "Expensive Mistake": The 30-Day Hard Stop
The most tragic stories in tech aren't about companies failing; they’re about companies succeeding and the early employees missing the 83(b) window.
There is no "late filing" for an 83(b). The IRS does not care if your HR department forgot to remind you, if your mail was lost, or if you were on vacation. If that letter is not postmarked within 30 days of your grant date, you are locked into the "Default Path" described above.
We have seen engineers at companies like Stripe or Uber lose $1M+ to the IRS because they missed a $15 certified mail deadline in their first month on the job.
Common Pitfalls to Avoid
The "Post Office" Error: You must send your election via Certified Mail with a Return Receipt. This is your only "get out of jail free" card if the IRS claims they never received it.
The RSA vs. RSU Confusion: You can file an 83(b) for RSAs (Restricted Stock Awards) and Early-Exercised Options. You cannot file an 83(b) for standard RSUs (Restricted Stock Units). Know which one you have.
The State Filing: Some states require a copy of the election to be filed with your state tax return. Missing this can lead to messy state-level audits later.
The Rally Solution
Calculating the "break-even" point of an 83(b) election involves complex variables: your current tax bracket, projected company growth, and the time-value of money.
You can spend a weekend building a spreadsheet to model these scenarios, or you can use Rally.
Rally’s Equity Modeling Engine is built for the Pre-IPO lifecycle. We help you visualize exactly how much an 83(b) could save you under different exit scenarios—from a modest acquisition to an IPO. We don't just give you the theory; we give you the math.
Don't let an administrative oversight turn your equity into a tax liability.
Rally Tax is an Authorized IRS e-file Provider and SOC2 Compliant.
