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!
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.
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.
To make the filing process easier, collect the following information for each form:
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.
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 electronically requires two things before being able to do so.
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.
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.
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.*