Can You Make an 83(b) Election on RSUs? What the IRS Allows

Executive Summary

Restricted Stock Units (RSUs) and Restricted Stock Awards (RSAs) are common forms of equity compensation, but they differ significantly in their tax treatment under the Internal Revenue Code (IRC). A critical distinction is the eligibility for a Section 83(b) election, which allows RSA holders to pay taxes on the fair market value of the stock at the time of grant rather than at vesting. This election can provide significant tax advantages by converting future appreciation into capital gains, which are typically taxed at a lower rate. However, RSUs do not qualify for this election because they represent a promise to deliver shares in the future, not an immediate transfer of property. Understanding these differences is crucial for employees and employers alike to optimize tax outcomes and comply with IRS regulations.

The bottom line: RSUs are not eligible for 83(b) elections, leading to taxation at vesting, while RSAs can leverage this election to potentially reduce tax liabilities on future gains.¹

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Legal Framework and Distinctions

Understanding RSUs and RSAs

Restricted Stock Units (RSUs) and Restricted Stock Awards (RSAs) are both forms of equity compensation, but they are treated differently under the tax code. RSUs are promises to deliver shares at a future date, contingent upon meeting certain vesting conditions. They are governed by IRC Section 409A, which deals with deferred compensation. In contrast, RSAs involve the immediate transfer of stock to the employee, subject to forfeiture if vesting conditions are not met, and are governed by IRC Section 83.

Section 83(b) Election

The Section 83(b) election allows RSA holders to elect to pay taxes on the fair market value of the stock at the time of grant rather than at vesting. This can be advantageous if the stock's value is expected to increase significantly, as it converts future appreciation into capital gains, which are taxed at a lower rate than ordinary income.

Critical Warning: RSUs cannot be subject to an 83(b) election because they do not constitute a transfer of property at the time of grant. Attempting to file an 83(b) election for RSUs is invalid and can lead to compliance issues.²

Treasury Regulation and IRS Guidance

According to Treasury Regulation 1.83-2, an 83(b) election must be filed within 30 days of the property transfer. For RSAs, this window begins at the grant date. However, since RSUs involve no property transfer at grant, they do not meet the criteria for an 83(b) election. The IRS has clarified that "Section 83 does not cover a promise to transfer property in the future, such as the grant of a restricted stock unit ('RSU') award."

Example Calculation: RSA vs. RSU

Consider an employee who receives 1,000 RSAs at a grant date fair market value (FMV) of $1 per share. If they file an 83(b) election, they recognize $1,000 as ordinary income immediately. If the stock appreciates to $10 per share by the vesting date, the $9,000 gain is treated as a capital gain.

**With 83(b) Election:**
- Grant Date: $1,000 ordinary income
- Vesting Date: No additional tax
- Sale: $9,000 capital gain

**Without 83(b) Election:**
- Grant Date: No tax
- Vesting Date: $10,000 ordinary income
- Sale: Capital gains on appreciation beyond $10/share

In contrast, RSUs are taxed at vesting based on the FMV at that time, resulting in $10,000 of ordinary income if the stock is worth $10 per share at vesting.

Why RSUs rarely support an 83(b) “property transfer” story

Section 83 generally looks for transfer of property to the service provider subject to substantial risk of forfeiture. Many RSUs describe a future issuance contingent on vesting—you often do not hold shares until settlement. With nothing to mark-to-market at grant, there is usually no 83(b) hook the way there is for RSAs or early-exercised options (see our how to file a Section 83(b) within 30 days checklist).

This is also why “can I 83(b) my RSUs?” is a different question than “should I 83(b) my RSA?” If you need the RSU mechanics end-to-end, read the comprehensive RSU tax guide first, then return here for the narrow ineligibility issue.

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Filing Requirements and Deadlines

Form 15620 and Filing Process

In November 2024, the IRS introduced Form 15620, the first official form for making 83(b) elections. This form must be filed within 30 days of the restricted stock grant or early exercise date. The form requires detailed information, including the taxpayer's name, the property description, the grant date, and the fair market value at the time of grant.

Filing Steps

1. Mail the Original Form: Send the completed Form 15620 to the IRS service center corresponding to your tax filing location.
2. Provide a Copy to the Employer: Deliver a copy of the form to your employer on the same day.
3. Retain a Copy for Records: Keep a copy of the form for personal recordkeeping.

Important Note: The 30-day filing deadline is strict, with no extensions or exceptions. Missing this deadline means forfeiting the ability to make the election.

Example Calculation: Missed 83(b) Election

Assume an employee receives 5,000 RSAs at a $0.50 FMV per share but misses the 30-day deadline for filing an 83(b) election. If the stock appreciates to $5 per share by vesting, they will recognize $25,000 as ordinary income at vesting, compared to $2,500 if they had filed the election.

**Missed 83(b) Election:**
- Vesting Date: $25,000 ordinary income
- Tax Rate: 37% (federal) = $9,250 tax liability

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Tax Implications for RSU Holders

Taxation at Vesting

RSUs are taxed as ordinary income at the time of vesting, based on the fair market value of the shares. This means that the entire value of the shares at vesting is subject to income tax, which can be significant if the stock has appreciated.

Net Share Settlement

Many companies use a net share settlement approach, where a portion of the shares is withheld to cover the tax liability. For example, if 1,000 RSUs vest at $50 per share, the total income is $50,000. Assuming a 37% federal tax rate, approximately 370 shares would be withheld to cover the $18,500 tax liability.

**Net Share Settlement Example:**
- Total Income: $50,000
- Tax Liability: $18,500 (37%)
- Shares Withheld: 370
- Net Shares Issued: 630

Capital Gains Treatment

Once RSUs vest and the shares are delivered, any subsequent appreciation is eligible for capital gains treatment. The holding period for capital gains begins at vesting, requiring a one-year hold to qualify for long-term capital gains rates.

Critical Warning: RSU holders cannot accelerate their holding period for capital gains purposes through an 83(b) election, unlike RSA holders.

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Double-Trigger and IPO Planning Considerations

Double-Trigger Vesting

Double-trigger RSUs require both a time-based vesting condition and a liquidity event, such as an IPO, to vest. This structure can defer taxation until both conditions are met, but it does not change the ineligibility for an 83(b) election.

IPO Planning

In the context of an IPO, RSUs with double-trigger provisions may accelerate vesting, leading to a significant tax event. Companies and employees must plan for the potential tax liability, often using net share settlements to manage the cash impact.

Example Calculation: Double-Trigger RSUs

Consider an employee with 2,000 double-trigger RSUs that vest upon an IPO at $25 per share. The total income recognized is $50,000, with a tax liability of $18,500 at a 37% federal rate. Approximately 740 shares would be withheld to cover taxes, leaving 1,260 shares.

**Double-Trigger RSU Example:**
- Total Income: $50,000
- Tax Liability: $18,500 (37%)
- Shares Withheld: 740
- Net Shares Issued: 1,260

Important Note: Double-trigger RSUs remain ineligible for 83(b) elections, and taxation occurs at settlement.

Not the same thing: Section 83(i) deferral

Some private-company employees explore Section 83(i) qualified equity grant deferral. 83(i) is not an 83(b) election, eligibility is different, and it does not turn RSUs into “early taxed property” in the 83(b) sense. If you are weighing RSU deferral vs RSA 83(b), treat them as separate elections with separate risks (including prospectively lost rates if law changes).

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RSA Eligibility for 83(b) Elections

Advantages of 83(b) Elections

The primary advantage of an 83(b) election is the potential to convert future appreciation into capital gains, which are taxed at a lower rate than ordinary income. This can result in significant tax savings, especially for early-stage companies with low initial stock values.

Example Calculation: RSA with 83(b) Election

Assume an employee receives 10,000 RSAs at a $0.10 FMV per share and files an 83(b) election. They recognize $1,000 as ordinary income. If the stock appreciates to $10 per share by vesting, the $99,000 gain is treated as a capital gain.

**RSA with 83(b) Election:**
- Grant Date: $1,000 ordinary income
- Vesting Date: No additional tax
- Sale: $99,000 capital gain

Comparison Table: RSUs vs. RSAs

Phantom units and “RSU-like” awards

Companies sometimes label equity as “units” or “phantom” cash plans. Payroll treatment can resemble RSUs for employees even when branding differs. Naming does not decide tax treatment—plan terms, delivery mechanics, forfeiture, and risk of loss do. If delivery is conditioned on tenure and contingent cash, you may still be outside Section 83 property transfer framing.

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Frequently Asked Questions

Can RSUs be subject to an 83(b) election?

Answer: No, RSUs cannot be subject to an 83(b) election because they do not involve a transfer of property at the time of grant. RSUs are promises to deliver shares in the future, and taxation occurs at vesting based on the fair market value at that time.

Source: IRS, Treas. Reg. § 1.83-2

What is the deadline for filing an 83(b) election?

Answer: The deadline for filing an 83(b) election is 30 days from the date of the property transfer, such as the grant date for RSAs. This deadline is strict, with no extensions or exceptions.

Source: IRS, Treas. Reg. § 1.83-2

How does net share settlement work for RSUs?

Answer: Net share settlement involves withholding a portion of the vested shares to cover the tax liability. For example, if 1,000 RSUs vest at $50 per share, and the tax liability is $18,500, approximately 370 shares would be withheld, leaving 630 shares issued to the employee.

Source: RSU tax guide (withholding overview)

What are the tax implications of double-trigger RSUs?

Answer: Double-trigger RSUs require both a time-based vesting condition and a liquidity event to vest. Taxation occurs at settlement based on the fair market value of the shares, and these RSUs remain ineligible for 83(b) elections.

Source: Brooklyn FI

Can an 83(b) election be revoked?

Answer: An 83(b) election is generally irrevocable once filed, with limited exceptions. Revocation is possible within 30 days of the original filing with IRS consent, or within 60 days of discovering a mistake of fact related to the transaction.

Source: Rev. Proc. 2006-31

How does the 83(b) election affect capital gains treatment?

Answer: An 83(b) election allows the holding period for capital gains to begin at the grant date rather than the vesting date. This can convert future appreciation into capital gains, which are taxed at a lower rate than ordinary income.

Source: Andersen

What happens if the stock value decreases after an 83(b) election?

Answer: If the stock value decreases after an 83(b) election, the taxpayer cannot recover the taxes paid on the initial grant value. This risk is a significant consideration when deciding whether to make an 83(b) election.

Source: Forbes

Are there any state tax implications for 83(b) elections?

Answer: Yes, state tax implications can vary. Some states may not recognize the 83(b) election, leading to different tax treatments at the state level. Taxpayers should consult with a tax advisor familiar with state-specific rules.

Source: Deloitte

What about California or New York state tax?

Answer: Some states piggyback federal timing for wage income; others layer source and assignment rules for mobile employees. New York sourcing for equity can be contentious for multi-state careers—see our New York equity guide for how these issues tend to surface (not RSU-specific legal conclusions).

Should I use estimated tax payments if I have large RSU vests?

Answer: Often yes—because supplemental withholding (commonly 22% on large equity cash events) can be below your marginal bracket. Our estimated tax guide walks through the cash-flow pattern; it does not replace W-4 planning with your payroll team.

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Footnotes

Primary Sources

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Disclaimer: This guide is for general education only and is not individualized tax, legal, or investment advice. Tax rules change, and your facts (employer plan design, residency, treaty status, payroll reporting) may differ. Consult a qualified tax professional before making decisions.

Footnotes

1. IRC §83 and Treas. Reg. §1.83-2 (83(b) timing and mechanics); compare restricted stock vs RSU settlement patterns in employer plan documents. ↩

2. Invalid or untimely 83(b) filings can create compliance and reporting messes—confirm transfer dates with counsel. ↩