Do I need to file an 83(b) election if vesting is imposed on my stock after it is issued?

Takeaway: If vesting is imposed on your stock after you purchase it, whether you should file an 83(b) election depends on how much time passed between grant and vesting imposition. If vesting is imposed within 2-3 months of grant, you should probably file an 83(b) election and if it was longer than that, you probably don’t have to. There is no hard and fast rule though and this is something you should consult your legal or tax advisor on.

If you receive stock that is subjected to vesting after it is issued (e.g., in a financing), you may be wondering whether you need to file an 83(b) election. The answer depends on the timing of the vesting imposition and the fair market value of the stock at the time of issuance.

Determine the Timing of the Vesting Imposition

There is no hard and fast rule or safe harbor for this. As a general rule of thumb, if your stock was subjected to vesting more than 3-4 months after it was issued, you don’t need to file an 83(b) election and if it was subjected to vesting before that, you probably should file an 83(b) election. Just because it has been 3-4 months since your stock was issued doesn’t mean you can’t file an 83(b) election - you still can but it may have different tax consequences - this is something to talk to a legal or tax professional about.

Consider the Fair Market Value of the Stock

83(b) elections are you telling the IRS that you want to be taxed now on the spread between the fair market value of the property (i.e., the shares) at the time of grant and the amount paid for the property, even if the shares have not yet vested. In order to file an 83(b) election, you must report the fair market value of the restricted stock at the time it is issued. The reason we do this immediately when shares are purchased is that the spread between the value and what you paid is typically $0 so your tax is… $0. So, you can file an 83(b) election later but you will be taxed on that same spread, which might be more material depending on when you make the filing.

Consult with a Tax Professional

It's important to consult with a qualified legal professional to determine whether you need to file an 83(b) election if vesting is imposed on your stock after it is issued. The legal professional can help you assess the fair market value of the stock, the timing of the vesting, and the potential tax implications of filing or not filing an 83(b) election.

Conclusion

Whether you need to file an 83(b) election if vesting is imposed on your stock after it is issued depends on the timing of the vesting and the fair market value of the stock at the time it is issued. If you are unsure whether you need to file an 83(b) election, it's important to consult with a qualified legal or tax professional to help you make an informed decision.