How to Early Exercise Stock Options and File the 83(b)

To early exercise stock options and file an 83(b) election, you buy your unvested shares at the strike price through your company’s plan administrator, then mail IRS Form 15620 within 30 days of the transfer. The reward for getting both steps right: any growth in the shares after you file is taxed at long-term capital gains rates rather than as ordinary income when the shares vest.¹ The math works best at a company’s earliest stages, when your strike price and the current fair market value are close or identical, because the spread you elect to be taxed on is what you pay tax on now.

Confirm Your Plan Allows Early Exercise

Not every option grant can be early exercised. The right to buy unvested shares has to be written into your company’s Equity Incentive Plan and your individual Stock Option Agreement. If neither document authorizes it, you wait for shares to vest on schedule.²

When early exercise is permitted, the company’s board attaches a Right of Repurchase. You legally own the shares once you buy them, but the company keeps a contractual right to buy back any unvested shares at your original strike price if you leave before vesting completes.³ That repurchase right is what makes the shares “restricted” for tax purposes, and it is what makes the 83(b) election meaningful.

Look through your Stock Option Agreement for phrasing like “immediately exercisable” or “early exercise permitted.” If the language is not there, ask your plan administrator or legal team. Some companies add early exercise as an amendment after grants are already in place, so what you originally signed may not reflect the current terms.

Purchase the Shares

Once you know early exercise is available, tell your company’s plan administrator how many shares you want to buy. You can exercise all of your unvested shares or just a portion. You submit a formal exercise notice and pay the total strike price, which is your exercise price per share multiplied by the number of shares. Payment is typically by personal check or wire transfer, though some plans allow other methods.

The company updates its cap table and issues either a restricted stock certificate or a digital entry in its equity management system showing your shares and the repurchase terms attached to them. For NSOs, your employer will withhold federal income tax, Social Security, and Medicare on any spread between the strike price and fair market value at exercise. If the spread is zero, there is nothing to withhold. For ISOs, no withholding applies at exercise, but the spread becomes an Alternative Minimum Tax consideration for the year.

File Form 15620 Within 30 Days

This is where plans fall apart. You have exactly 30 days from the date the shares transfer to you to file IRS Form 15620. Miss the deadline and the election is gone permanently: no extension, no late-filing procedure, no appeal.¹ If the 30th day falls on a weekend or federal holiday, the deadline extends to the next business day.⁴

Send the form by mail to the IRS office where you normally file your individual return.⁴ Use USPS Certified Mail with Return Receipt Requested. That gives you two pieces of proof: a postmark showing the date you mailed it, and a signed return receipt showing the IRS received it. Those receipts are the only confirmation you will ever get. The IRS does not send an acknowledgment letter.

You also have to give a signed copy of the form to your employer so the company can adjust its payroll and tax reporting.⁵ You no longer need to attach a copy to your annual federal return, but some states still require a copy with your state income tax filing. Check your state’s rule with a tax advisor.

Don’t wait until day 28. Mail the form the same week you exercise. Certified Mail takes several days to process, and postal delays will not excuse a late filing. Some practitioners send duplicate filings to two different IRS addresses as a belt-and-suspenders approach. Photograph or scan every document before mailing, including the certified mail receipt and the return receipt card once it comes back signed.

One more thing to sit with before mailing: the election cannot be revoked without IRS consent, which is essentially never granted.¹ If the shares later fall below what you paid, you have locked in a tax position you cannot undo.

What Goes on Form 15620

Form 15620 is the IRS’s standardized form for the 83(b) election. Errors and omissions can jeopardize the filing, so cross-reference each field against your Stock Option Agreement and exercise notice before mailing.⁴

Your full legal name, Social Security Number, and current mailing address.
A description of the property: the number of shares and the name of the issuing company, specific enough to distinguish these shares from any other equity you hold.
The transfer date, which is the exercise date.
The taxable year in which the transfer occurred.
The nature of the restrictions on the shares, including the vesting schedule and repurchase rights.
The per-share fair market value at transfer, determined without regard to restrictions that will eventually lapse.⁴
Your strike price per share and the total amount you paid.

For a private company, the fair market value on the form typically comes from the company’s most recent 409A valuation. That is the independent appraisal private companies obtain to set option strike prices, and your finance team or equity administrator can give you the current figure. If the strike price was set at the 409A fair market value and you exercise immediately after your grant, the spread is zero and you report that on the form. The transfer date on Form 15620 must match the exercise date on the company’s records, and the share count must match exactly. These details become relevant years later when you sell the shares and need to establish cost basis.

How ISOs and NSOs Are Treated Differently

The tax treatment of your election depends on whether you hold Incentive Stock Options or Non-Qualified Stock Options.

With NSOs, the spread between your strike price and fair market value at exercise is taxed as ordinary income immediately, with employer withholding. Filing 83(b) on early-exercised NSOs locks that spread in at today’s (ideally small) amount so that all future appreciation shifts to capital gains treatment.

ISOs are different. Exercising an ISO does not create regular income tax at exercise, but the spread is an adjustment for the Alternative Minimum Tax. Filing 83(b) on early-exercised ISOs still creates an AMT adjustment equal to the spread at exercise, and it freezes that amount while the spread is small. ISOs also carry a stricter holding period for favorable rates: at least one year after exercise and two years after the original grant date.⁶ Selling inside those windows is a disqualifying disposition, and the spread gets reclassified as ordinary income.

Watch the AMT if You Hold ISOs

When you exercise ISOs and hold the shares through year-end, the spread between strike price and fair market value is added to your alternative minimum taxable income. If that pushes you past the AMT exemption, you can owe AMT even when you owe nothing under the regular tax system. Employees at fast-growing startups have been caught by six-figure AMT bills after exercising ISOs on shares they could not yet sell.

Early exercising and filing 83(b) is the tool for keeping this small. Exercise when the spread is zero and the AMT adjustment is zero. Wait until the shares have appreciated and the AMT bill can be substantial. The AMT you pay does generate a credit against future regular tax, but recovery can take years. If you are planning a large ISO exercise, model the AMT impact before you exercise, not after.

What Happens If You Leave Before Vesting

The biggest downside sits at the back end. If you leave the company before your shares fully vest, the company exercises its repurchase right and buys back your unvested shares at the original strike price. You get your money back for those shares. What you do not get back is the tax you already paid on the income you reported through the 83(b) election.¹

The statute is blunt: if property is forfeited after an 83(b) election, “no deduction shall be allowed in respect of such forfeiture.” You can only claim a capital loss equal to what you actually paid out of pocket for the forfeited shares, minus what the company pays back in the repurchase. If you exercised at the strike price and the company repurchases at the same price, your capital loss is zero.

The risk is manageable when the spread at exercise is zero, because you reported zero additional income and paid zero additional tax. The real damage happens when you file 83(b) on shares with a meaningful spread, pay tax on that spread, and then forfeit the shares. Before you early exercise, honestly assess how likely you are to stay through your full vesting period.

Keep the Paperwork

These records stay relevant until you eventually sell the shares or the company has a liquidity event, which can be years or decades later. Keep the following organized and backed up:

Your signed copy of Form 15620.
The USPS certified mail receipt showing the mailing date.
The signed return receipt card confirming IRS delivery.
The exercise notice you submitted to the company.
Proof of payment: canceled check, wire confirmation, or equivalent.
Your Stock Option Agreement with grant details, exercise price, and vesting schedule.
Any written 409A valuation documentation your company provided at the time of exercise.

When you eventually sell, your cost basis is what you paid at exercise plus any income you recognized through the 83(b) election. Without records proving your exercise date, price paid, and fair market value at that time, establishing basis becomes difficult and you can end up paying more tax than you owe. Store digital copies in cloud storage and keep the physical originals somewhere safe.

1
Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services
2
U.S. Securities and Exchange Commission. Nextdoor, Inc. 2018 Equity Incentive Plan – Stock Option Agreement
3
U.S. Securities and Exchange Commission. LinkedIn Corporation Form of Option Exercise and Repurchase Agreements
4
Internal Revenue Service. Form 15620 – Section 83(b) Election
5
eCFR. 26 CFR 1.83-2 – Election to Include in Gross Income in Year of Transfer
6
Office of the Law Revision Counsel. 26 USC 422 – Incentive Stock Options