What are Restricted Stock Awards (RSAs)?
Restricted Stock Awards are actual shares of company stock that are given to you, or sold to you at a set price, on the grant date and then vest over time. That’s the key difference from RSUs. An RSU is a promise to deliver shares later. An RSA puts the shares in your name on day one, with strings attached: if you leave before they vest, the company takes back the unvested shares (or buys them back at whatever you paid).
Because you own the shares from the start, depending on your plan you may get voting rights and receive dividends even on unvested shares. RSAs are most common for founders and very early employees at startups, when the stock is worth very little. Some public companies also use them, especially for board members.
The reason they’re so common early on comes down to one tax election, the 83(b) election, which we’ll get to below.
How are RSAs taxed?
By default, RSAs are taxed a lot like RSUs. Each time a portion of your shares vests, the value of those shares on the vesting date, minus anything you paid for them, is ordinary income. For employees, it’s added to your W-2 and is subject to income tax, Social Security and Medicare. Your holding period for capital gains starts on the vesting date.
That works fine at a public company where you can sell shares to cover the tax. At a startup it can be a real problem. If the company is growing, each vesting date brings a larger tax bill on shares you can’t sell, because there’s no market for them yet. You end up paying real cash in tax on paper wealth.
What is an 83(b) election?
An 83(b) election lets you choose to be taxed on all of your shares now, on the grant date, instead of as they vest. The income you report is the value of the shares on the grant date minus what you paid, which at an early-stage startup is often very small, or even zero if you paid full value.
Once you make the election:
- There’s no tax when your shares vest.
- All future growth is taxed as capital gain when you eventually sell.
- Your holding period for long-term capital gains starts on the grant date, not on each vesting date.
The rules are strict. You have 30 days from the grant date to file the election with the IRS. That’s calendar days, with no extensions and no exceptions. You can use IRS Form 15620 or a signed written statement, and you should give a copy to your company. Send it by certified mail with a return receipt and keep that proof permanently. Once filed, the election generally can’t be undone.
How much can an 83(b) election save?
Let’s take a look at an example. An early employee receives 200,000 RSA shares when the company’s stock is worth $0.05 per share, so the whole grant is worth $10,000. They pay nothing for the shares. One-quarter of the shares (50,000) vest each year for four years, and the company keeps growing. The company is then acquired in Year 6 at $15 per share.
| Vesting date | Shares vesting | Value per share | Ordinary income without 83(b) |
|---|---|---|---|
| End of Year 1 | 50,000 | $1 | $50,000 |
| End of Year 2 | 50,000 | $3 | $150,000 |
| End of Year 3 | 50,000 | $6 | $300,000 |
| End of Year 4 | 50,000 | $10 | $500,000 |
| Total | 200,000 | $1,000,000 |
Without an 83(b) election, this employee reports $1,000,000 of ordinary income over four years while the company is still private, with no way to sell shares to pay the tax. When the company is acquired for $3,000,000 (200,000 × $15), the remaining $2,000,000 is capital gain.
With an 83(b) election, they report $10,000 of ordinary income in the grant year, and nothing at vesting. When the company is acquired, $2,990,000 is long-term capital gain.
The 83(b) election moved $990,000 out of ordinary income, taxed at up to 37%, and into long-term capital gains, taxed at a maximum of 23.8%. At the top rates, that’s about $130,000 less in tax. Just as important, it eliminated four years of tax bills on stock that couldn’t be sold.
If your company is a qualified small business, the 83(b) election can also start the clock earlier for the Qualified Small Business Stock (QSBS) exclusion, which can be worth even more than the difference in tax rates.
What’s the risk of an 83(b) election?
You’re paying tax up front on shares you might never keep. If you leave before your shares vest, or the company fails, you can’t get back the income tax you paid because of the 83(b). The only loss you can claim is for what you actually paid for the shares, if anything.
When the shares are worth pennies on the grant date, that risk is small, and the 83(b) is usually an easy decision. When the shares are already worth a meaningful amount, it becomes a real bet on the company, and it’s worth running the numbers first.
The same logic applies if your company lets you “early exercise” stock options before they vest. The shares you get are restricted stock, and an 83(b) election starts your capital gains clock early in the same way.
What are common RSA tax mistakes?
- Missing the 30-day deadline. This is the most expensive mistake, and it can’t be fixed after the fact.
- Assuming the company filed it. The election is yours, and so is the responsibility. Many companies remind you, but they don’t file it for you.
- Not keeping proof of mailing. If the IRS ever questions the election, your certified mail receipt is your evidence. This often comes up years later, when an acquirer’s due diligence asks for proof that elections were filed on time.
- Overlooking dividends on unvested shares. Without an 83(b), dividends paid on unvested shares are treated as compensation, not as investment income, and they’re taxed at ordinary rates.
RSAs can be one of the most tax-efficient forms of equity compensation available, but almost all of that value depends on a decision you have 30 days to make.
This article is for general educational purposes and is not tax advice for your specific situation. Figures reflect 2026 federal tax rules.