Section 83(h) — definition & guide

The IRC section that lets an employer deduct the same amount an employee recognizes as income on a Section 83 property transfer, including RSU vests and NSO exercises.

Section 83(h) of the IRC gives the employer a tax deduction equal to the amount included in the employee’s income under Section 83 when property transfers for services. For RSUs, NSOs, and early-exercised options that vest without 83(b), the employer deducts the FMV at vest (or at exercise for NSOs) in the same year the employee reports the income. If the employer and employee are on different tax years, the matching rule aligns to the employee’s recognition year. The deduction appears on the company’s return, not the employee’s.

Example: a public company pays out $5 billion in RSU wage income to employees in 2025. The company deducts $5 billion under Section 83(h), reducing corporate taxable income. The federal tax savings at 21% is roughly $1.05 billion, which shows up as a reduction in the current tax expense on the income statement.

Common mistake: treating Section 83(h) as relevant to individual planning. It is the company’s deduction, not the employee’s. Employees see none of it. It matters, however, in founder equity discussions where the company’s future deduction is part of the negotiation.

Section 83(h) matters in founder-led cap table design, M&A purchase accounting, and private company tax planning that models forward-looking equity deductions.