Form 3921
Exercise of an Incentive Stock Option Under Section 422(b)
Exercise of an Incentive Stock Option Under Section 422(b)
Form 3921, “Exercise of an Incentive Stock Option Under Section 422(b),” is a tax form used in the United States. It provides information about the exercise of incentive stock options (ISOs) that are set forth under Section 422(b) of the Internal Revenue Code. Form 3921 must be filed by the corporation or employer that transferred stock to an employee upon the exercise of an Incentive Stock Option. This form is part of the 1099 series, which are used to report various types of income that individuals may receive throughout the year other than salary from an employer. It is an essential document for tax reporting purposes, ensuring that interest income is correctly reported to the IRS.
View More About Form 3921 on IRS.gov
Quick Links
- Why do you need to file a 3921?
- Who Needs to File a 3921?
- Are there any exemptions to filing a 3921?
- What is the deadline for filing a 3921?
- What is required to file a 3921?
- What are the penalties for 3921?
- Do you need to e-file a 3921?
- What elements make up a 3921 form?
- Can you correct a 3921?
Why do you need to file a 3921?
Form 3921 is necessary to provide information about the exercise of incentive stock options (ISOs) to both the IRS and the individual who exercised the option. Here’s why filing Form 3921 is important:
Tax Reporting Requirement
- The Internal Revenue Service (IRS) requires corporations to report specific details about the exercise of ISOs to ensure accurate tax reporting and compliance.
Tracking ISO Exercises
- ISOs come with potential tax benefits, provided certain conditions are met. By requiring companies to report exercises of these options, the IRS can track and verify the proper tax treatment of these transactions.
Employee Information
- Employees or former employees who exercise ISOs need the information on Form 3921 to determine the tax implications of their stock transactions. The form provides essential details like the grant date, exercise date, exercise price, and the fair market value on the exercise date.
Determining Tax Treatment
- Properly filled Form 3921 helps individuals determine if they’ve met the holding period requirements for favorable tax treatment. If stock acquired through an ISO exercise is sold after holding it for at least one year from the exercise date and two years from the grant date, the gains are typically taxed at long-term capital gains rates. If these requirements aren’t met, the sale might result in a "disqualifying disposition," leading to different tax implications. Form 3921 provides the necessary dates and values to make this determination.
Avoiding Penalties
- Corporations that fail to provide Form 3921 when required can face penalties from the IRS. By adhering to the reporting requirement, corporations can avoid these potential penalties.
Accuracy and Transparency
- By mandating a standardized reporting method for ISO exercises, the IRS ensures that both corporations and individuals have a clear and consistent understanding of the relevant transactions.
In essence, Form 3921 provides a comprehensive record of the exercise of incentive stock options, helping both corporations and individuals fulfill their tax obligations and ensuring the IRS has the information necessary to monitor and enforce tax compliance.
Who needs to file a 3921?
Form 3921 must be filed by the corporation or employer that transferred stock to an employee upon the exercise of an Incentive Stock Option (ISO) under Section 422(b) of the Internal Revenue Code. Here’s a breakdown:
Corporations with ISO Plans
- Any corporation that has granted ISOs to its employees and has seen any of those options exercised in a given year needs to file Form 3921.
For Each Transaction
- A separate Form 3921 is required for each person who exercised ISOs during the year. So, if a corporation had multiple employees exercising ISOs, they would need to file a form for each individual transaction.
Recipient of the Form
- While the corporation is responsible for filing the form with the IRS, they must also furnish a copy of Form 3921 to the individual (typically an employee or former employee) who exercised the ISO. This allows the individual to use the provided information for their tax reporting.
It’s crucial for corporations or employers with ISO plans to be aware of their reporting obligations associated with Form 3921. Not only does it ensure compliance with IRS regulations, but it also provides essential information to employees for their personal tax reporting.
Are there any exemptions to filing a 3921?
Form 3921 is specifically designed to report the exercise of Incentive Stock Options (ISOs) under Section 422(b) of the Internal Revenue Code. If a corporation has granted ISOs to its employees and any of those options are exercised during the tax year, the corporation is generally obligated to file Form 3921.
However, there are some situations where a Form 3921 might not be required, not because of explicit exemptions related to the form itself, but because of the nature of the stock options or the transaction:
Non-Qualified Stock Options (NSOs)
- If the stock options are not ISOs but are instead non-qualified stock options (NSOs), then Form 3921 is not used. NSOs have different tax implications and reporting requirements.
No Exercise of Options
- If none of the employees or other option holders exercise their ISOs during the tax year, then there would be no triggering event that requires the corporation to file Form 3921 for that year.
Stock Options Granted to Non-Employees
- ISOs can only be granted to employees. If stock options are granted to non-employees, such as consultants or board members, those aren’t ISOs and wouldn’t be reported on Form 3921.
Other Forms of Stock-Based Compensation
- There are various forms of stock-based compensation (e.g., restricted stock units, stock appreciation rights). Form 3921 is specifically for ISO exercises. Other forms of stock compensation have their own reporting requirements and aren’t reported on Form 3921.
It’s important to note that just because a corporation might not have an obligation to file Form 3921 in a particular situation, that doesn’t mean there aren’t other reporting obligations or tax implications associated with the stock options or stock-based compensation.
What is the deadline for filing a 3921?
The deadline for filing a 3921 can vary based on the several factors:
Sending to Recipients
- The form should be furnished to the recipient by January 31 of the year following the payment year.
Filing with the IRS
- If you are filing on paper, the forms should be submitted to the IRS by February 28 (or the last day of February) of the year following the payment year.
- If you are filing electronically, the deadline extends to March 31 of the year following the payment year.
However, if any of these dates fall on a weekend or a holiday, the deadline may be extended to the next business day. Additionally, if you discover an error after the initial filing, there are separate deadlines for corrected 3921 forms.
Remember, missing these deadlines can result in penalties, so it’s crucial to stay informed and act timely.
What is required to file a 3921?
To file a Form 3921, you will need certain information about both the payer (the person or business making the payment) and the recipient (the person or business receiving the payment). Here’s what is required to file a 3921:
Information about the Payer (Transferor)
- Payer’s Name and Address
- Provide your legal business name and mailing address.
- Payer’s Taxpayer Identification Number (TIN)
- This could be your Employer Identification Number (EIN) or your Social Security Number (SSN), depending on your business structure. If you’re a sole proprietor, you might use your SSN; if you’re a business entity, you’d use your EIN.
- Payer’s Phone Number
- Include a phone number where the payer can be reached.
Information about the Recipient (Employee)
- Recipient’s Name and Address
- Provide the legal name and mailing address of the individual or business receiving the payment.
- Recipient’s Taxpayer Identification Number (TIN)
- This could be the recipient’s Social Security Number (SSN) if an individual or their Employer Identification Number (EIN) if a business entity.
Form specific information
- Box 1 – Date Option Granted
- Box 2 – Date Option Exercised
- Box 5 – Number of Shares Transferred
What are the penalties for 3921?
Please see the penalties section for details.
Do you need to e-file a 3921?
Please see the e-file section for details.
What elements make up a 3921 form?
The 3921 contains several Boxes, each designed to report specific types of income or information. Here is a breakdown of the Boxes on the 3921:
- Box 1 – Date Option Granted
- Enter the date the option was granted.
- Box 2 – Date Option Exercised
- Enter the date the option was exercised.
- Box 3 – Exercise Price Per Share
- Enter the exercise price per share of stock.
- Box 4 – Fair Market Value Per Share on Exercise Date
- Enter the fair market value (FMV) per share of stock on the date the option was exercised.
- Box 5 – Number of Shares Transferred
- Enter the number of shares of stock transferred pursuant to the exercise of the option.
- Box 6 – If Other Than TRANSFEROR, Name, Address, and TIN of Corporation Whose Stock Is Being Transferred
- Enter the name, address, and TIN of the corporation whose stock is being transferred pursuant to the exercise of the option. Enter this information only if the corporation is not the entity shown in the TRANSFEROR Boxes in the upper left corner of Form 3921.
Remember, not all boxes will be filled out on every 3921 form. Only the relevant boxes for the specific payments made will have amounts or indicators.
Can you correct a 3921?
Yes, you can correct a 3921. Please see the corrections and negations section for details.