What is a Section 83(i) election? What does my company need to do with respect to Section 83(i) elections?

The Tax Cuts and Jobs Act of 2017 added a new Section 83(i) to the Internal Revenue Code, which may allow an eligible employee to defer federal income tax otherwise resulting from the acquisition of shares after December 31, 2017, through the exercise of a stock option or settlement of a restricted stock unit for up to five years by filing a Section 83(i) election with the IRS within 30 days after the date of exercise of an option (or for unvested shares purchased through the early exercise of an option, within 30 days after the date of vesting or the stock becoming transferable, whichever is earlier) or within 30 days after the date of settlement of a restricted stock unit, if the employee and the company satisfy certain eligibility requirements. The Section 83(i) election will not defer federal employment taxes and also may not defer state taxes in certain states.

If a stock option or restricted stock unit satisfies the eligibility requirements for a Section 83(i) deferral election, the company must provide notice of eligibility for the election generally when (or a reasonable period before) the shares covered by the option (or restricted stock units) would, but for the application of Section 83(i), be taxable to the employee. Generally, this is the date on which the company transfers the shares to the employee (or for unvested shares purchased through the early exercise of an option, the date of vesting if the employee does not timely file a Section 83(b) election with the IRS to treat the shares as vested on the date of transfer for tax purposes).

Please see WSGR’s client alert on Section 83(i) for more information.

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