When employees exercise their incentive stock options (ISOs), companies need to file Form 3921. Find out if this requirement applies to you.
Equity compensation plans come with their fair share of tax reporting obligations. For companies that
offer incentive stock options (ISOs), one of those reports is Form 3921. This makes it important to
understand who needs to file this form, what deadlines and filing fees apply and the penalties
associated with non-compliance. The following discussion assumes that the ISOs qualify at the time of exercise as incentive stock options under section 422 of the Internal Revenue Code.
Form 3921 is a form that companies have to file with the IRS when an existing or former employee exercises an ISO. One form needs to be filed for each transfer of stock that occurs pursuant to an ISO exercise during the applicable calendar year. Companies also need to provide each applicable shareholder with a copy of this form. Failure to file this form, or even missing filing deadlines, can result in significant penalties.
Companies with shareholders who have exercised ISOs in the previous calendar year need to file. Companies generally do not need to file if an ISO is exercised by an employee who is not a U.S. citizen and is considered a non-resident of the U.S. 1
Form 3921 is completed in three parts. Copy A is sent to the IRS; Copy B is the version you share with employees; and Copy C is for your own records. Companies filing 250 of these forms or more with the IRS need to file electronically. If you have fewer than 250 forms to file, you can do so either electronically or by paper.2
To avoid late filing penalties, it’s important to meet these IRS filing deadlines3
Provide Copy B of the form to all applicable employees (or former employees)
Deadline to file paper versions of Copy A with the IRS
Deadline to electronically file Copy A with the IRS
Many equity plan management platforms can automate the filing of a range of tax forms, including Form 3921.
Read More about the thought Leadership and insights to the role of Morgan Stanley
1 IRS. Instructions for Forms 3921 and 3922. 2017
2 2023 General Instructions for Certain Information Returns (irs.gov)
3 2023 Stock Option Notices and IRS Incentive Returns
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