Do I need to pay for my NQSOs before making an 83(b) election?

August 14, 2000

Subject:   83(b) question
Date:   Mon, 7 Aug 2000
From:   Darin

Just visited your site. I found it to be very informative and helpful, especially the stock option information. I have a quick question for you, if you don’t mind. I have a few thousand non-qualified stock options that vest over a four year period. I have not vested in any of the stock yet. In order to make the 83(b) election, must I literally exercise the options and pay the company the exercise price? Or may I just make the election, and then pay for the options later, perhaps as they vest? Any info would be greatly appreciated. Thanks



Date:   09 Aug 2000

Hello Darin,

In most cases, you must exercise the option and receive the stock before you can make a Section 83(b) election with respect to the transaction.

For example, many companies are allowing an early exercise where non-vested stock is received, such as shortly before an initial public offering. A Section 83(b) election would be appropriate for this scenario.

I hope this helps.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, “Executive Tax and Financial Planning For Non-Qualified Stock Options”.

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