Section 83(i) Qualified Equity Grant Calculator 2026
Calculate the 5-year income tax deferral benefit of a Section 83(i) election for private company stock options and RSUs. Compare deferral vs no-deferral across multiple stock growth scenarios.
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Federal Income Tax Deferred
$0
FICA Due at Vest (Not Deferred)
$0
Tax Without 83(i) β Year 0
$0
After-Tax Wealth With 83(i)
Section 83(i) Calculation Summary
How the 83(i) Deferral Works
Without a 83(i) election, the FMV of shares at vest is ordinary income in the year received. With the 83(i) election, that income is deferred up to 5 years. The shares can appreciate over 5 years, but the tax is based on the FMV at vest β not the higher 5-year value. FICA taxes are still due at vest.
The Formula
Ordinary Income = Shares x FMV at Vest
Tax Without 83(i) = Ordinary Income x (Federal Rate + State Rate)
FICA at Vest = Ordinary Income x 7.65% (up to SS wage base)
Tax Deferred = Ordinary Income x Federal Rate (pushed to year 5)
FMV at Year 5 = FMV at Vest x (1 + Growth)^5
Capital Gain on Growth = (FMV Year 5 - FMV Vest) x Shares x LTCG Rate
Tax Without 83(i) = Ordinary Income x (Federal Rate + State Rate)
FICA at Vest = Ordinary Income x 7.65% (up to SS wage base)
Tax Deferred = Ordinary Income x Federal Rate (pushed to year 5)
FMV at Year 5 = FMV at Vest x (1 + Growth)^5
Capital Gain on Growth = (FMV Year 5 - FMV Vest) x Shares x LTCG Rate
Example
10,000 shares at $12 FMV, 22% rate now, 25% annual growth expected:
Ordinary income: $120,000
Tax without 83(i): $120,000 x 22% = $26,400 federal + FICA
83(i) defers the $26,400 for up to 5 years
FMV at year 5 (25% growth): $12 x 1.25^5 = $36.62 per share = $366,200
Long-term gain on appreciation: ($366,200 - $120,000) = $246,200 at 15-20% LTCG
Ordinary income: $120,000
Tax without 83(i): $120,000 x 22% = $26,400 federal + FICA
83(i) defers the $26,400 for up to 5 years
FMV at year 5 (25% growth): $12 x 1.25^5 = $36.62 per share = $366,200
Long-term gain on appreciation: ($366,200 - $120,000) = $246,200 at 15-20% LTCG
Sources and References (click to expand)
- IRC Section 83(i) β Qualified Equity Grant Deferral Election
- IRS Notice 2018-97 β Section 83(i) Guidance and Requirements
- Revenue Procedure 2018-58 β Qualified Equity Grant Plans
- Treasury Regulation 1.83-7 β Taxation of Nonqualified Stock Options
- IRS Publication 525 β Taxable and Nontaxable Income (Stock Options)
Extended
5-Year Deferral vs No-Deferral Comparison
Multi-scenario: stock up 50%/100%/200% vs flat vs down. After-tax wealth and SVG bar chart
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After-Tax Wealth: 83(i) Deferral vs No Deferral β Multiple Scenarios
| Stock Scenario | FMV Year 5 | No 83(i) β Tax at Vest | With 83(i) β Tax at Yr 5 | 83(i) Advantage |
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After-Tax Wealth by Scenario
Liquidity Event Triggers β When 83(i) Deferral Ends
| Trigger Event | Description | Tax Impact |
|---|---|---|
| 5 Years from Vesting | Automatic end of deferral period | Ordinary income on vest-date FMV due |
| IPO / First Public Sale | Company goes public or lists on exchange | Income recognized at event date |
| Acquisition / Merger | Company acquired; shares converted to cash/stock | Income recognized at exchange |
| Shares Become Transferable | Restrictions lifted, secondary market opens | Income recognized when transferable |
| Employment Termination | You leave the company | Income recognized at departure date |
Frequently Asked Questions
What is the Section 83(i) election and who can use it?
Section 83(i) allows employees of eligible private companies to defer the recognition of ordinary income from stock options (NSOs) or RSUs for up to 5 years after the shares vest. Without the election, income is recognized when shares are received (at vesting for RSUs, at exercise for NSOs). With the election, you still receive the shares, but the income tax is deferred β the taxable event is pushed to the earlier of: (a) 5 years from vesting, (b) a liquidity event (IPO, acquisition, or public market), (c) when shares become transferable, or (d) employment termination.
What are the 83(i) eligibility requirements for the company?
The company must: (1) not be publicly traded, (2) have a written plan granting options or RSUs to at least 80% of all US-based full-time employees in the same calendar year, (3) be a corporation (not a partnership or LLC taxed as partnership). The employee receiving the grant cannot be a 1% or more owner, the CEO, CFO, any of the 4 highest-paid employees, or any employee who was ever in those positions. The stock received must not be subject to a risk of forfeiture when the election is made.
Does the 83(i) election defer FICA taxes (Social Security and Medicare)?
No. FICA taxes (Social Security and Medicare) are due at the time of vesting regardless of the 83(i) election. Only federal income tax is deferred. This means you will owe FICA on the FMV of the shares at vest β your employer will withhold this. The deferral only applies to the federal income tax component. State income tax treatment varies by state and may not follow the federal 83(i) deferral.
What are the risks of making an 83(i) election?
Key risks: (1) You pay the original FMV as ordinary income after 5 years even if the stock has declined in value or become worthless. You cannot get a refund of deferred taxes if the stock crashes. (2) You are not guaranteed a liquidity event within 5 years. (3) The company might change its legal status (go public or be acquired), triggering early recognition. (4) Some states do not recognize the federal deferral, so you may owe state taxes at vesting even with the federal 83(i) election in place.
How do I make the 83(i) election?
You must make the election within 30 days of the vesting date (the same deadline as a Section 83(b) election). The election is made by providing written notice to the IRS and your employer. The IRS has not issued a specific form; instead, you file a statement with the IRS Service Center where you file your return. You must include the election on the copy of your federal income tax return for the year of the vesting event. Missing the 30-day deadline means you lose the right to make the election for that tranche of shares.