Understanding Form 3921

Understanding tax forms can be like deciphering a secret code. To help you out, this blog post is going to break down Form 3921. Whether you’re an employee receiving company stock options or an employer granting them, this form plays a crucial role in reporting stock option exercises. Let’s explore Form 3921 together!

What is Form 3921?

Form 3921 is a tax form used to report the exercise of incentive stock options (ISOs) by employees. When an employee exercises their ISOs – which means they buy company stock at a specified price – their employer provides Form 3921 to both the employee and the IRS after year end. One form needs to be filed for every ISO exercise. 

This form includes important details such as the date the ISOs were granted, the exercise price per share, the fair market value of the stock on the exercise date, and the number of shares purchased. It helps employees determine their cost basis in the purchased shares and reports this information to the IRS for tax purposes.

Form 3921 is essential for employees to accurately report any potential taxable income resulting from the exercise of their incentive stock options. It assists both employees and the IRS in tracking and calculating the tax consequences related to exercising these stock options.

As an employer, one form must be filed for every ISO exercise. It is your responsibility to ensure that this happens prior to the deadline, otherwise, significant penalties may take place.

How To File Form 3921

Form 3921 can either be filed electronically or through the mail.  However, it is important to understand that 3 separate copies of the form need to be completed before the filing is considered complete. 

  • Copy A: sent to the IRS either electronically or through the mail
  • Copy B: provided to the employee who exercised their ISO options 
  • Copy C: keep for company records

To make the filing process easier, collect the following information for each form:

  • A list of each employee who exercised their ISO options in the previous calendar year, including their name, address, SSN, and tax ID number.
  • The company’s legal name, address, and FEIN
  • The company’s TCC (transmitter control code)
  • The date of the option grant
  • The date of the option exercise
  • The exercise price per share
  • The fair market value of the share on the exercise date
  • The number of shares transferred

As mentioned above you can choose to file your forms through the mail or electronically. If your company is filing more than 250 forms, it must be done electronically.

Filing Form 3921 Through the Mail

To file by mail you must request specific paper the forms from the IRS can be printed on.  Due to the IRS’s processing machines, you cannot simply print the forms from your computer on your office paper.  You can request this order at this link.

It is important to note that the IRS does not always have these supplies readily available, so planning ahead is important.  Once your order is processed it typically takes about 15 days for it to arrive.

Filing Form 3921 Electronically

Filing electronically requires two things before being able to do so.

  1. An account with the IRS FIRE system.  This account is required for filing any type of information return, such as the 3921 Form. 
    1. It is important to note that as of this blog post’s latest update, the FIRE system is not currently available for registration due to annual updates.  According to the IRS website, access will resume on January 8th, 2024. 
  2. A TCC for you company. This is a specific code unique to your company.  If this is your first time filing electronically you will need to fill out the form 4419 to receive your TCC.
    1. You need to have a TCC before applying for the FIRE system
    2. Receiving your TCC may take a couple of weeks, starting this process early is key, as the cutoff date for this year is March 1, 2024.

2024 Deadlines

It is important to make sure you are filing the forms by the indicated deadlines below.  Failing to do so may result in fines and other penalties.

  • January 31st – All employees should receive copy B of Form 3921
  • February 28th – Copy A needs to be filed with the IRS if filing through the mail
  • April 1st – Copy A needs to be filed with the IRS if filing electronically

Penalties and How to Avoid Them

The easiest way to avoid fines is by filing the forms correctly before their due date. 

If you file the forms correctly 30 days after the due date you will have to pay $60 per form with a cap of $630,500 per year or $220,500 per year for small businesses.

If you file the forms correctly more than 30 days after but prior to August 1st the fine increases to $120 per form filed with a cap of $1,891,500 per year or $630,500  per year for a small business. 

If you file the forms after August 1st, or never file them correctly you will be charged $310 per form with a maximum fine of $3,783,000 per year or $1,261,000 per year for a small business. 

If the IRS finds that your business intentionally avoided the deadline, they can charge you up to $630 per form with no cap. 

Needless to say, filing on time and correctly will save your business a lot of money.

I am an Employee, What Should I do with the Form 3921 I Received?

As an employee, you will need to file your 3921 Form with your taxes.  It will go with Form 1040  and is due by April 15th. 

As an employee who has exercised an ISO you will not pay taxes until you choose to sell the stock.

Understanding Form 3921 might seem like diving into the deep end of tax paperwork.  But taking this information, you’re now better equipped to navigate the world of employee stock options come tax time. Remember, Form 3921 is your ticket to ensuring compliance with IRS regulations regarding incentive stock options. Keep this form handy, as it holds the key to accurately reporting your stock option exercises and their tax implications.

If you still have questions, our team at Finvisor is here to help! Contact us today!

*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*

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