83(b) Elections and Token Grants: How to Reduce Your U.S. Crypto Tax Bill

For thousands of crypto professionals across the U.S., tax season brings one recurring question: “Should I have filed an 83(b) election?”

It’s a small, easily overlooked form — but one that can make the difference between keeping your hard-earned gains or owing a life-changing tax bill.

As of today, nearly 29% of the global crypto workforce is based in the United States, which means the IRS plays a huge role in determining how token-based compensation is taxed. Whether you’re an early employee at a DeFi startup or a founding engineer at a Layer-1 protocol, if you’ve received tokens as part of your pay, you’ve likely stepped into the complex world of token taxation and compliance.

Let’s set the stage with a common scenario: You join an early-stage crypto company and receive a Restricted Token Award (RTA) that vests over four years with a one-year cliff. The project succeeds. Your tokens skyrocket in value. You finally sell them — only to discover you owe hundreds of thousands (or even millions) more in taxes than expected. Why? Because you didn’t file an 83(b) election.

The 83(b) election allows you to pay taxes on your tokens when they’re granted, not when they vest. That one decision can dramatically lower your total tax bill, since you’re paying tax on the early, low valuation instead of the much higher price after your tokens appreciate. In short: you lock in a lower taxable value today to avoid massive future tax obligations.

However, this decision comes with trade-offs. Filing too early can backfire if your tokens lose value or the project fails. That’s why understanding how the 83(b) election works, when to use it, and how to file it properly is critical for anyone receiving token-based compensation in the U.S.

In this article, we’ll break down how the 83(b) election applies to token grants, when it makes sense to file, and the potential savings or risks it can create.

You’ll also learn how companies like Toku help crypto organizations ensure that employees can file correctly, stay compliant, and maximize their after-tax gains.

What Is an 83(b) Election?

The 83(b) election is one of the most powerful yet misunderstood tools available to anyone receiving restricted tokens or token options as part of their compensation.

It gives you the choice to pay taxes on your tokens when they’re granted, instead of waiting until they vest. In other words, you can prepay taxes based on the current (usually much lower) fair market value of your tokens — and potentially save thousands or even millions of dollars in future tax obligations.

Let’s unpack what that means.

How 83(b) Election Works

Normally, when you receive a restricted token grant or stock award, the IRS considers it “income” only once the tokens vest — that is, once you’ve earned the right to keep them and they’re no longer subject to forfeiture. At that point, you owe ordinary income tax on the fair market value (FMV) of the tokens at the time of vesting.

But with an 83(b) election, you tell the IRS:

“I want to pay taxes now — on the value of the tokens as of the grant date — even though I don’t yet own them outright.”

This election must be filed within 30 days of receiving the grant, and it’s irrevocable. Once it’s filed, you can’t change your mind later, even if the tokens lose value or never fully vest.

Why 83(b) Election Matters for Crypto Employees

The 83(b) election matters because it allows you to lock in a low tax basis early, before your tokens appreciate in value.

Let’s say your employer grants you 100,000 tokens at $1 each. You file an 83(b) election, pay ordinary income tax on that $100,000 of value, and hold onto the tokens. Two years later, when they vest and are worth $10 each, you’ve already paid your income tax — meaning any additional gain is taxed as capital gains, not ordinary income.

Since long-term capital gains tax rates are often lower than ordinary income tax rates, this difference can translate to massive savings.

The Risk of Filing

Of course, filing early comes with risk.

If your tokens decrease in value or the project fails, you don’t get a refund for taxes already paid. You’re essentially betting that your tokens will appreciate — a reasonable assumption in a growing project, but still a gamble.

That’s why most employees only file the 83(b) election if they strongly believe in the project’s long-term success or are granted tokens at a very low valuation (for example, pre-launch or before listing).

Employer Considerations

For employers, supporting the 83(b) election is equally important.

You must ensure that employees receive timely grant documentation, have access to the fair market value at the grant date, and understand their filing responsibilities. Many U.S.-based crypto companies work with partners like Toku to automate these steps — ensuring both compliance and employee satisfaction.

How Much Can You Save Through Using an 83(b) Election?

For many crypto employees, the decision to file an 83(b) election can feel abstract — until you see the numbers.

To understand just how impactful this simple form can be, let’s look at a side-by-side example that shows what happens when an employee files an 83(b) election versus when they don’t.

The Setup

You’re granted 100,000 Restricted Token Awards (RTAs), with a 4-year vesting schedule and a 1-year cliff.

At the time of the grant, your company’s tokens are worth $10 each.

The value of your token increases every year:

We’ll assume:

• Ordinary income tax rate: 30%
• Capital gains tax rate: 10%
• Fair market value (FMV) applies at each vesting date

Now, let’s compare two employees — one who files the 83(b) election and one who doesn’t.

Scenario A: You File the 83(b) Election

In this case, you decide to pay taxes upfront on the initial token value when the grant is made (Year 0).

That means you owe ordinary income tax on $1,000,000 ($10 x 100,000 tokens), which equals $200,000 in taxes.

That’s it — you’re done with income tax.

When your tokens vest in the coming years, no additional income tax is due because you’ve already recognized the income. When you eventually sell the tokens, any appreciation in value (the gain from $10 to $200 per token) will be taxed as a long-term capital gain — a much lower rate.

• Total income tax: $200,000
• Total capital gains tax: $1,900,000
• Total tax paid: $2,100,000

Scenario B: You Don’t File the 83(b) Election

Now let’s say you decide not to file.

Each year as your tokens vest, you owe ordinary income tax based on their value at that moment.

• Year 1: $1.25M × 30% = $375,000
• Year 2: $2.5M × 30% = $750,000
• Year 3: $3.75M × 30% = $1,125,000
• Year 4: $5M × 30% = $1,500,000
• Total income tax: $3,750,000

Then, when you sell the tokens, you’ll owe capital gains tax on the appreciation from the vesting price to the sale price. Assuming an average cost basis of $125 per token and a sale price of $200, your total capital gain is $7.5M, which at 10% equals $750,000.

• Total capital gains tax: $750,000
• Total tax paid: $4,500,000

The Difference

By filing the 83(b) election, you pay $2.1M total instead of $4.5M total — saving $2.4 million in taxes, or more than 50% of what you would otherwise owe.

This example highlights why early crypto employees who understand the 83(b) election can dramatically improve their after-tax returns. The earlier you’re taxed (when your tokens are cheap), the better your outcome if the project appreciates in value.

Key Takeaways for Employees and Founders

For Employees:

• File the 83(b) election within 30 days of receiving your grant — late filings are automatically invalid.
• Make sure your company provides a clear grant letter showing FMV at the time of issuance.
• File via certified mail or with a proof of delivery to the IRS.

For Founders and Employers:

• Communicate clearly to employees about their ability to file.
• Provide documentation early enough for recipients to make an informed decision.
• Consider partnering with a crypto-native grant administrator like Toku to automate valuation, vesting schedules, and 83(b) tracking.

By aligning both employee education and compliance processes, crypto organizations can empower their teams to make smart financial choices — and avoid unnecessary tax burdens.

Risks and Limitations of Filing an 83(b) Election

While the 83(b) election can lead to major tax savings, it isn’t a guaranteed win. It’s a strategic financial decision that depends on timing, token valuation, project maturity, and personal risk tolerance.

Filing it blindly — without understanding the potential downsides — can backfire and lead to unnecessary tax losses.

Below are the main risks and limitations every token grant recipient (and employer) should understand before submitting the form.

1. The Risk of Overpaying Taxes if Tokens Lose Value

The most common risk is simple but painful: your tokens drop in value after you’ve already paid taxes on them.

Let’s say you’re granted 50,000 tokens at $5 each, and you file an 83(b) election immediately. You pay income tax on $250,000 of income.

But six months later, the token’s value collapses to $0.50, or worse — the project fails entirely.

You’ve already paid taxes based on the original $250,000 valuation, but you now hold tokens worth $25,000.

And the IRS doesn’t offer refunds on overpaid taxes caused by market decline.

Crypto markets are notoriously volatile — sometimes moving 50–80% within weeks. Filing an 83(b) election is essentially a bet that your tokens will appreciate in value, not fall. Employees should only file when the project’s fundamentals are strong, the token price is low, and the risk of complete devaluation is limited.

2. Liquidity and Cash Flow Constraints

Even if your tokens increase in value, paying taxes upfront can still cause cash flow problems — especially for early-stage employees.

If you’re granted a large number of tokens, even at a low price, your tax bill might be significant.

For example, receiving 500,000 tokens at $2 each means recognizing $1 million in taxable income, which could result in a $200,000+ tax liability at ordinary income tax rates — due immediately, and in cash.

Since tokens granted at this stage are usually non-transferable and illiquid, you can’t sell any to pay the tax bill. That means employees must come up with cash from personal savings to cover the tax payment.

For many, this is the biggest barrier to filing the 83(b) election.

3. Forfeiture Risk (Losing Tokens Before Vesting)

Token grants often have vesting schedules with cliffs, meaning you must stay employed for a certain period before earning full ownership.

If you leave the company — voluntarily or otherwise — before your tokens vest, any unvested portion is forfeited.

If you’ve already filed an 83(b) election and paid taxes on all tokens (including unvested ones), you won’t get a refund for the taxes associated with forfeited tokens.

In short: you pay taxes on income you never actually receive.

That’s why the 83(b) election makes the most sense for employees who are confident they’ll stay with the project long-term and see it through the full vesting period.

4. Administrative and Compliance Mistakes

Another practical risk: filing errors.

The 83(b) election must be filed within 30 days of the grant date, and the IRS is strict about deadlines. There’s no extension, appeal, or retroactive fix if you miss the window — your election is automatically invalid.

Common mistakes include:

• Forgetting to sign or date the form.
• Sending it to the wrong IRS address.
• Not providing a copy to your employer.
• Failing to include a self-addressed, stamped envelope for confirmation.

Because of these nuances, many organizations rely on Toku’s Token Grant Administration platform to automate documentation and track deadlines for each grant recipient — reducing the risk of costly compliance errors.

5. Uncertainty in Regulatory Interpretation

Finally, the IRS’s guidance on token-based compensation continues to evolve. While current rules generally treat tokens as property, future legislation or IRS interpretations could alter how token grants are taxed or valued.

This uncertainty means employees and employers must stay proactive. Filing an 83(b) election under today’s guidance is valid — but you should continue monitoring changes that could affect how gains or vesting are reported later.

Bottom Line

The 83(b) election can be a game-changer — but it’s not for everyone.

It requires confidence in your project, tolerance for short-term financial risk, and a clear understanding of your tax obligations.

At Toku, we help both employers and employees weigh these factors, prepare accurate valuations, and execute filings correctly — ensuring compliance while maximizing long-term benefits.

How to File an 83(b) Election: Step-by-Step Process

Filing an 83(b) election is deceptively simple — it’s just a one-page form — but the consequences of missing a step or a deadline can be serious.

In the context of token compensation, where values fluctuate rapidly and records must be precise, filing correctly becomes even more critical.

Below is a detailed, step-by-step breakdown of how the 83(b) election works, what to include, and how companies like Toku make this process seamless for crypto organizations and their teams.

Step 1: Understand the 30-Day Rule

The most important rule is timing.

You must file the 83(b) election within 30 calendar days from the date your tokens were granted — not the date they vest. This deadline is strict.

Even if the 30th day falls on a weekend or holiday, the IRS does not grant extensions. Missing the window invalidates your election, and you’ll be taxed at vesting instead.

For this reason, many companies now integrate 83(b) support into their token grant administration platforms, giving employees instant access to key grant details, valuation data, and filing reminders. Toku’s system, for example, automatically tracks and alerts recipients to ensure no deadlines are missed.

Step 2: Obtain the Fair Market Value (FMV) at Grant Date

Before you can file, you need the Fair Market Value (FMV) of your tokens at the time of the grant.

This value determines the amount of ordinary income you’ll report and pay taxes on.

For liquid tokens, the FMV can be derived from exchange prices or weighted averages.

For illiquid or pre-launch tokens, your company may need to provide an independent third-party valuation — similar to how private companies use 409A valuations for equity grants.

Toku’s valuation partners and integrated data sources allow employers to generate accurate FMV reports for every token grant, ensuring compliance across jurisdictions.

Step 3: Complete the IRS 83(b) Election Form

The form itself is short but must include key information:

1. Your full name, address, and Social Security number
2. Description of the property – in this case, the type and quantity of tokens granted
3. Date of grant and taxable year
4. FMV of the tokens at the grant date
5. Amount paid (if any) for the tokens
6. Statement of restrictions, including vesting schedule and forfeiture conditions
7. Signature and date

You don’t need a special version of the form — a typed or handwritten letter containing the required information will suffice.

However, accuracy is everything. Even small errors or omissions can cause issues if the IRS audits your return later.

Toku’s legal templates include pre-filled 83(b) forms tailored to each token grant, making it nearly impossible for employees to file incorrectly.

Step 4: File the Form with the IRS

Once complete, you must send your signed 83(b) election to the IRS office that handles your local tax returns.

It’s highly recommended to send it by certified mail with return receipt requested, so you have proof of timely filing.

Keep this receipt safe — it’s your only evidence if the IRS ever disputes whether the form was filed on time.

If you’re filing electronically, you can also use secure mail services that generate a timestamped proof of delivery.

Step 5: Send a Copy to Your Employer

After mailing the form to the IRS, you must also send a copy to your employer (the token grantor).

This allows the company to maintain accurate records of who has filed an election and ensures that payroll, tax withholding, and year-end reporting align correctly.

For token-based compensation, this coordination is essential — especially when tracking vesting events or calculating cost basis for capital gains later.

Toku’s Employer Dashboard automates this process by:

• Recording who filed the 83(b) election.
• Storing digital copies of the form.
• Syncing the employee’s data with their payroll and tax records.

This ensures both the employee and employer remain compliant without manual tracking.

Step 6: Keep a Copy for Your Records

Finally, keep at least three copies of your 83(b) election:

1. The original mailed to the IRS (with proof of mailing)
2. The copy sent to your employer
3. A personal copy for your tax records

It’s also smart to store a digital backup. Crypto tax audits are increasingly common, and having these records ready can prevent long, stressful disputes over token valuations or timing.

Step 7: Plan for Future Taxes

Filing an 83(b) election doesn’t mean you’re done with taxes forever.

When you eventually sell your tokens, you’ll still owe capital gains tax on the appreciation from the grant-date FMV to the sale price.

However, because you’ve locked in a low initial tax basis, your long-term gains are typically much more favorable than if you hadn’t filed.

To stay compliant, Toku clients receive detailed tax summaries that track:

• Original FMV at grant
• Vesting schedule progress
• Subsequent sale data and capital gains implications

This transparency gives both employees and employers peace of mind throughout the entire token lifecycle.

How Toku Simplifies the Process

Managing token grants across multiple jurisdictions is complex. But with Toku’s Token Grant Administration (TGA) platform, the 83(b) process is fully automated:

• Auto-reminders ensure employees never miss filing deadlines.
• Pre-filled, jurisdiction-compliant templates reduce manual errors.
• Secure filing records are stored for every grant.
• Valuation reports are automatically linked to each token grant.

By combining compliance automation, tax expertise, and Web3-native infrastructure, Toku eliminates the friction that has traditionally made token compensation — and the 83(b) process in particular — so difficult to manage.

Make Your Token Tax Strategy Work for You — Not Against You

Understanding and correctly filing an 83(b) election can be the difference between a small tax bill and a life-changing one. For crypto employees, founders, and early contributors, it’s not just about compliance — it’s about strategically aligning taxes with long-term gains.

The 83(b) election gives you a powerful tool to lock in today’s token value and reduce future tax exposure, but it’s not without risk. Filing too late, miscalculating fair market value, or overestimating your project’s success can result in costly mistakes. The key is to combine clear information, accurate valuations, and expert guidance from the start.

That’s where Toku comes in.

Our Token Grant Administration platform simplifies every aspect of the 83(b) process — from automated valuation reports and filing reminders to secure document tracking and tax withholding management. We partner with the industry’s top legal and tax advisors to ensure every token grant and election remains compliant, no matter how complex your jurisdictional footprint may be.

By working with Toku, crypto organizations and employees can:

• Eliminate the guesswork around token valuation and tax timing.
• File all required documents securely and on time.
• Align compensation, compliance, and long-term incentive planning under one platform.
• Focus on innovation and growth — while we handle the legal, tax, and operational complexity behind the scenes.

As the global regulatory landscape for digital assets evolves, one fact remains constant: compliance and foresight are your best competitive advantages. The earlier you establish a compliant token grant structure and educate your team on mechanisms like the 83(b) election, the stronger your foundation for sustainable growth becomes.

At Toku, we don’t just help you meet today’s requirements — we future-proof your token compensation programs for tomorrow’s challenges.

Make token compensation simple with us.

Skip out on those sleepless nights — and let Toku handle your 83(b) elections, token grants, and crypto payroll compliantly and confidently.

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