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Save Taxes on Equity Compensation: What to Know About the Simplified Section 83(b) Election

January 20, 2025

Have you been granted equity in your company? The Section 83(b) election allows you to save tax on this compensation, and good news! It’s now simpler to make the election. Here’s what you should know.

The Section 83(b) election is a helpful option for employees who have been granted equity as part of their compensation. In the past, taxpayers had to write their own election letters (a difficult process, where errors could lead to unexpected tax bills in the future). The new IRS Form 15620 simplifies this by offering a standard template, reducing mistakes and making filing much easier. Let’s take a closer look at the new form.

What is the section 83(b) election?

The Section 83(b) election is a valuable tax-saving tool that allows taxpayers to pay taxes upfront on unvested property (such as company stock) while its value is lower, rather than waiting to pay taxes later when it vests and may be worth more.

Historically, to make the 83(b) election, taxpayers have had to draft their own election forms, which is a lengthy process prone to errors. Oftentimes, these errors lead to invalid elections and the potential for unexpected, increased tax liability in the future.

What’s new?

The IRS has released Form 15620 which provides a standardized template to simplify the election process. The form reduces the risk of mistakes and makes it easier for taxpayers to successfully make the election.

Picture this:

Let’s say you are a software developer at a startup. As part of your compensation package, you are granted 1,00 shares of company stock. Because the shares are unvested, they come with certain conditions—you must stay at the company for three years before the shares fully vest and become yours without restrictions.

As of now, those shares are valued at $1 each. If the company grows quickly—that value could increase greatly by the time the shares vest. This could result in a hefty tax burden.

If you instead made the Section 83(b) election, you pay taxes upfront on their current $1 value, which can provide significant tax savings if the stock’s value increases.

This new form helps you easily make this election and lock in those tax savings.

What should I do if I wish to file Form 15620?

1. Mail Form 15620 to the IRS Office

If you are making a Section 83(b) election using Form 15620, ensure you mail the completed form to the IRS office where you file your federal income tax return. This is consistent with the current process and must be done promptly to meet the filing deadline (within 30 days of receipt of the restricted property).

2. Provide a copy of the Section 83(b) election form to your employer or other contracting party. This requirement has not changed.

View the full form here: https://www.irs.gov/pub/irs-pdf/f15620.pdf

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