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I am granted a certain amount of RSU's every year, this year being the first. They vest at 25% after one year, and then 1/16th of grant every one month period after that. My question is to tax implications, and specifically the Section 83(b) Election.

My understanding is that I can make that election to pay taxes now (even though they aren't vested) based on the dollar value at the time they are granted? Now, our stock price has already gone up significantly since they were granted to me. Assuming our price is still high when I sell the RSUs in another 10 months (when first chunk vests), would I not pay any taxes on the gains because I already claimed them as income? Or, would those gains then be capitol gains only? Also, what happens if I quit / get terminated after paying taxes on un-vested shares? Do I lose those taxes, or do I get it back in a refund next year? Or would it be a deduction next year?

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I can make that election to pay taxes now (even though they aren't vested) based on the dollar value at the time they are granted?

That is correct. You must file the election with the IRS within 30 days after the grant (and then attach a copy to that year's tax return).

would I not pay any taxes on the gains because I already claimed them as income?

No, you claim income based on the grant value, the gains after that are your taxable capital gains. The difference is that if you don't use 83(b) election - that would not be capital gains, but rather ordinary salary income.

what happens if I quit / get terminated after paying taxes on un-vested shares? Do I lose those taxes, or do I get it back in a refund next year? Or would it be a deduction next year?

You lose these taxes. That's the risk you're taking.


Generally 83(b) election is not very useful for RSUs of established public companies. You take a large risk of forfeited taxes to save the difference between capital gains and ordinary gains, which is not all that much.

It is very useful when you're in a startup with valuations growing rapidly but stocks not yet publicly trading, which means that if you pay tax on vest you'll pay much more and won't have stocks to sell to cover for that, while the amounts you put at risk are relatively small.

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