Reporting an 83(b) election on your tax return happens in two stages. In the year of the grant, you report the ordinary income you chose to accelerate; in the year you sell the shares, you report the capital gain or loss using a basis that reflects that income. This assumes you already mailed the election statement to the IRS within 30 days of the grant. What follows is how to put the numbers in the right places on Form 1040, both now and later.
Figure the Income You Have to Report
The ordinary income you recognize equals the fair market value of the stock on the grant date minus whatever you paid for it. If the shares were worth $2.00 each and you paid $0.01, you recognize $1.99 per share as compensation income, taxed at ordinary rates in the year of the grant rather than the year of vesting.
That same figure does double duty. It drives the tax you owe now, and it sets your basis for the eventual sale. Your basis equals what you paid plus the ordinary income you recognized, so in the example above your basis is $2.00 per share. Every dollar of appreciation beyond that is a capital gain when you sell, and if you hold long enough, a long-term one.
If you paid full fair market value for the stock (common for founders receiving restricted stock at incorporation), the taxable income from the election is zero. You still had to file the election within 30 days, but there is no income number to enter anywhere on your return. The point of filing in that situation is to lock in the zero figure so future appreciation is capital gain rather than ordinary compensation.
Where the Income Goes on Your 1040
How you report the income depends on whether your employer handled it through payroll.
When It Is on Your W-2
For a standard employee grant, the employer usually puts the 83(b) income in Box 1 of your W-2 and withholds federal income tax, Social Security, and Medicare on it. If that is what happened, you don’t do anything special at tax time. You file the W-2 the way you normally would, and no separate form or statement is required for the 83(b) income itself.
Check that the Box 1 figure matches your own calculation before you file. A mismatch between what you report and what your employer reported to the IRS will eventually generate a notice. If the number is wrong, ask the employer for a corrected W-2 (Form W-2c) rather than papering over it on your return.
When It Is Not on Your W-2
Sometimes the income never reaches a W-2. This happens for advisors or contractors, for grants made after someone has left the company, or simply because the employer made a mistake. In that case you have to put the income on your return yourself.
Report it on Schedule 1 (Additional Income and Adjustments to Income), which flows into Form 1040. Enter the amount on the “Other income” line with a description such as “Section 83(b) election income.” That gets it taxed at your ordinary rate. If you were an employee and the employer should have withheld Social Security and Medicare but didn’t, Form 8919 (Uncollected Social Security and Medicare Tax on Wages) is where you address the missing employment tax.1Internal Revenue Service. About Form 8919, Uncollected Social Security and Medicare Tax on Wages
If you received the restricted stock as an independent contractor, board advisor, or other non-employee, the 83(b) income is generally subject to self-employment tax as well. You report it on Schedule C and compute self-employment tax on Schedule SE, which means paying both halves of Social Security and Medicare. The up-front cost of the election is noticeably higher for a non-employee than for an employee receiving the same grant.
You Do Not Attach the Election to Your Return
For property transferred on or after January 1, 2016, you no longer attach a copy of the election statement to your Form 1040. The IRS removed that requirement in final regulations amending Treasury Regulation Section 1.83-2(c).2eCFR. 26 CFR 1.83-2 – Election to Include in Gross Income in Year of Transfer Filing the statement with the IRS within 30 days of the grant and giving a copy to the company is all the delivery that is required; nothing goes with the 1040.
The IRS released Form 15620 in late 2024 as a standardized way to make the election, but it is optional. A written statement containing the information required by the regulations still works.3Internal Revenue Service. Instructions for Form 15620, Section 83(b) Election Either way, keep your own copy with proof of timely mailing.
Reporting the Sale Years Later
The second reporting event is the sale. You list the transaction on Form 8949 (Sales and Other Dispositions of Capital Assets), and the totals flow to Schedule D.4Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets The arithmetic is sale price minus adjusted basis. Getting the basis right is where almost everyone trips up.
Your Adjusted Basis
Adjusted basis equals what you paid plus the ordinary income you recognized through the election. Paid $0.01 and reported $1.99 of 83(b) income? Basis is $2.00. Sell at $10.00? Capital gain is $8.00 per share. Using the correct basis is what prevents you from being taxed twice on the same $1.99.
Holding Period
The 83(b) election starts your holding period on the grant date, not the vesting date. That acceleration is the main financial payoff of the election: you cross the one-year mark for long-term capital gains treatment much sooner. Short-term gains are taxed at ordinary rates; long-term gains run between 0% and 20% for most taxpayers.5Internal Revenue Service. Topic No. 409, Capital Gains and Losses On Form 8949, enter the grant date as the acquisition date.
Fixing the Basis on the 1099-B
The broker who processes your sale reports it to you and the IRS on Form 1099-B. In almost every case, the cost basis on that 1099-B reflects only what you originally paid for the shares, not the higher basis that includes your 83(b) income. The broker has no way to know about the election.
How you correct the basis on Form 8949 depends on whether the broker reported basis to the IRS:6Internal Revenue Service. Instructions for Form 8949
- If basis was reported to the IRS (Box A for short-term or Box D for long-term is checked), enter the incorrect 1099-B basis in column (e), put adjustment code “B” in column (f), and enter the difference between the correct basis and the reported basis as a negative number in column (g). The adjustment brings the gain down to the right amount.
- If basis was not reported to the IRS (Box B or Box E checked), just enter your correct adjusted basis in column (e). No code is needed because there is no competing figure on file.
Because most people holding 83(b) stock sell more than a year after the grant, Box D or Box E is the usual box. The totals from Form 8949 carry to Schedule D.
If You Forfeit the Shares Before Vesting
If you leave the company before the stock vests, the unvested shares go back and the ordinary income tax you already paid does not come back with them. The statute is explicit: no deduction is allowed for the forfeiture of property on which an 83(b) election was made.7Office of the Law Revision Counsel. 26 US Code 83 – Property Transferred in Connection With Performance of Services
What you can report is a capital loss equal to the amount you actually paid for the forfeited shares, not the fair market value you reported as income. Paid $0.01 and reported $1.99 of 83(b) income? The capital loss on forfeiture is $0.01 per share. The tax paid on the $1.99 is gone.
Records to Keep
The burden of proving the election, the income reported, and the resulting basis is entirely on you. The IRS does not maintain a searchable database of 83(b) elections, so thin records can mean losing the higher basis that made the election worth filing. Keep:
- A signed copy of the election statement (Form 15620 or your own letter) along with proof of timely mailing, such as a certified mail receipt. Without proof of timely filing, the IRS can treat the election as invalid.
- The restricted stock grant or purchase agreement showing share count, price paid, and vesting schedule.
- Fair market value documentation: the 409A appraisal for private company stock, or a dated record of the market price for publicly traded stock.
- The Form 1040 (and Schedule 1, if used) from the year you recognized the income. This is your evidence that you reported it and established the higher basis.
- The W-2 showing the income in Box 1, or whatever records support how the income was reported if it was not on a W-2.
Hold the file until at least seven years after you sell the stock and report the final gain or loss. The three-year audit window runs from the return reporting the sale, not the return reporting the original election, so for stock held a long time the practical retention period can stretch well past a decade.