Understanding Form 3921: A Guide for Employers and Startups

An ISO can only be granted to a valued employee by a corporation, whereas NSOs can be offered to any individual who works with a corporation, such as a contractor. Companies that use Pulley can generate Form 3921 directly in the platform. We automatically produce the paper copies of the form, and ahead of the 2022 tax season we’ll be able to produce the Copy A file that can be used on the IRS’s FIRE system. As of 2022, Form 3921 must be filed on paper by February 28 or electronically by March 31 of the year following the tax year in question. This difference in tax treatment is a key reason why the IRS requires companies to provide Form 3921 as an informational tax form. The difference between the fair market value of the shares and the exercise price is known as the spread.

The IRS requires employers to complete this field if there are multiple accounts for the same employee. Otherwise, the IRS suggests that employers complete the field as a best practice. At the top of the form, there is a box marked, “Corrected (if checked).” If your employer must refile a revised version of the form, this should be checked. If there’s a resulting underpayment of taxes due to mistakes in Form 3921, the IRS can charge interest on the owed amount from the due date of the return until the date of payment. Repeated mistakes or consistent delays in filing might flag your business for increased scrutiny from the IRS.

  1. There are different addresses based on regions, so be sure to consult the latest IRS instructions for Form 3921 to determine the correct address for your business.
  2. It comes with unique deadlines and consequences if you fail to file it on time.
  3. Read the 1099-B to see if the expenses related to the sale were excluded from the reported proceeds.
  4. Investors, shareholders, and even employees look for evidence of transparent operations.

When you receive form 3921, this means that your employer transferred stock to you because you exercised an incentive stock option (ISO). Because this is a statutory stock option, there are generally no tax consequences for having exercised the option. The due date for all employers to issue IRS Form 3921 to their employees is January 31 of the calendar year following the exercise of ISOs. This includes any former employee who exercised their stock options after leaving the employer. Moreover, RSUs, by their very design, offer a form of flexibility in taxation.

Transferor’s TIN

Find out how real estate income like rental properties, mortgages, and timeshares affect your tax return. The bottom line is that fines can quickly add up if you don’t pay attention to critical details, such as deadlines and the information on the forms themselves. If your company has employees who exercised ISOs in a calendar year, you need to file one Form 3921 per exercise for that calendar year. In this guide, we’ll review how and when to file the all-important Form 3921. We’ll also show you how to use Pulley to generate a fully compliant Form 3921 and create copies that you can send to employees and keep for your own company records. The account number is required if you have multiple accounts for a transferor for whom you are filing more than one Form 3922.

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Enter the FMV per share of stock on the date the option to purchase the stock was exercised. Enter the fair market value (FMV) per share of stock on the date the option was granted. Enter the number of shares of stock transferred pursuant to the exercise of the option.

Interestingly, Restricted Stock Units (RSUs) do not necessitate the use of Form 3921. This is because RSUs and ISOs are inherently different mechanisms of stock-based compensation. ISOs grant employees the option to buy company stock at a predetermined price, whereas RSUs essentially promise shares of stock or the cash equivalent upon vesting.

Enter this information only if the corporation is not the transferor. Enter the number of shares of stock transferred under the exercise of the option. Keep a record of the AMT basis in your files so that you can correctly figure the AMT gain or loss when you sell the stock. The capital loss deduction for net AMT losses is limited to $3,000.

Current Legal Analysis

As with most information returns, it is a good idea to retain your Form 3921 in your tax records. However, the IRS does not require you to file this form with your tax return. All sales that do not meet the criteria of a qualifying disposition are disqualifying dispositions.

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Whether you’re a seasoned business owner or a fresh startup founder, understanding Form 3921 is important in safeguarding your company’s financial health and reputation. Send Copy B to the employee who exercised the ISO during the tax year. Those filing by mail are required to order physical copies of Form 3921 from the IRS. If you are using the downloadable version of Form 3921, do not file Copy A, which is the red copy.

To ease statement furnishing requirements, Copies B, C, and D of Form 3921 have been made fillable on-line in a pdf format, available at IRS.gov/Form3921. For the latest information about developments related to Forms 3921 and 3922 and their instructions, such as legislation enacted after they were published, go to IRS.gov/Form3921 or IRS.gov/Form3922.

Watch this informative video to learn more about how your employer will report ISOs on Form 3921. In extreme cases, where non-compliance is deemed to result form 3921 turbotax from fraudulent intent, the IRS might pursue criminal charges. Though rare, it underscores the importance of treating these forms with utmost seriousness.

Your dedicated expert will find every dollar you deserve, guaranteed. Lastly, maybe your former employer’s benefits department might have the information you need. As with most official forms, you can find a copy of Form 3921 https://turbo-tax.org/ on the IRS website. For informational purposes, a copy of the form is also available below. Check out our step-by step instructional guide for more information on how to submit your information return with IRS Form 1096.

Shares of stock transferred as a result of the exercise of an option described above must be identified in a manner sufficient to enable the accurate reporting of the transfer of legal title to such shares. This identification can be made by assigning to the share certificates of stock issued pursuant to such options a special serial number or color. Corporations file this form for each transfer of stock to any person pursuant to that person’s exercise of an incentive stock option described in section 422(b). The specifics of the stock, including the number of shares involved in the ISO exercise, are fundamental. It’s also just as important to mention the stock’s value on the transaction date and the price per share.

But this is not counted as the taxable income in the standard income tax calculation. Employers must furnish Copy B of Form 3921 to the employee who exercised the incentive stock option by January 31 of the year following the year in which the ISO was exercised. This gives the employee ample time to prepare for their personal tax filings, considering any implications from the ISO exercise. By logging details of stock options granted to employees, businesses can ensure that their compensation strategies align with their broader operational goals.