Every corporation, whether a startup or public company, that has an employee who exercises an incentive stock option (ISO) must provide the employee an information statement about the exercised option (using IRS Form 3921). A copy of Form 3921 must be provided to the employee no later than January 31 following the calendar year of exercise, and a copy of the information statement must be filed with the IRS by February 28 (or electronically by March 31) following the calendar year of exercise.
This means that for each employee who exercised ISOs in 2020, the company must furnish a copy of Form 3921 to the employee by February 1, 2021, (because January 31, 2021 falls on a Sunday) and file a copy of Form 3921 with the IRS by March 1, 2021, (because February 28, 2021 falls on a Sunday) if filing a paper return, or March 31, 2021, if the form is filed electronically.
The information to be provided on Form 3921 includes:
- The date the option was granted;
- The date the option was exercised;
- The exercise price per share;
- The fair market value per share on the date of exercise; and
- The number of shares transferred pursuant to exercise of option.
Are there exceptions? Of course!
- The Form 3921 information reporting requirement only applies to the exercise of an incentive stock option. It does not apply to the exercise of a nonqualified stock option.
- A Form 3921 is not required for the exercise of an ISO by someone who is a nonresident alien and to whom the company is not required to provide a Form W-2.
A corporation is subject to a penalty if the Form 3921 is not timely provided to the employee or filed with the IRS. The penalty ranges from $50-$280 per form, depending on how late the form is.
You can find a downloadable version of Form 3921 here.
Only if you had one or more employees exercising incentive stock options (ISOs) during a calendar year. No. You need to provide the exercising employees with an “information statement” on Form 3921 on or before January 31 of the
following calendar year AND provide the same form to the IRS as an “information return” on or before February 28 of the following calendar year (or March 31 if you file electronically). These dates may be extended if January 31, February 28 or March 31 occurs on a weekend or holiday. You can get
Form 3921 at the IRS Website or by calling 1-800-TAX FORM (829-3676). Check out our Cooley Client Alert. Last reviewed: January 25, 2022Does this apply to us?
Does it matter if we are public or private?
What do we need to do and by when?
Where can I get Form 3921?
Where can I get more information?
Where do I report Form 3921 - Exercise of an Incentive Stock Option Under Section 422(b)?
For regular tax purposes, Form 3921 is generally informational unless stock acquired through an incentive stock option under Section 422(b) is sold or otherwise disposed of. The information on Form 3921 may then be used to figure the basis for the gain or loss of the sale or disposition for the year in which the stock is sold or otherwise disposed of.
Per the Form 3921 Instructions for Employee:
" You must recognize (report) gain or loss on your tax return for the year in which you sell or otherwise dispose of the stock. Keep this form and use it to figure the gain or loss"
See Publication 525, Taxable and Nontaxable Income for more information.
Although this information is not taxable for regular tax purposes when exercised, you may have to include the information for Alternative Minimum Tax (AMT) purposes.
Per the Form 3921 Instructions for Employee:
"When you exercise an ISO, you may have to include in alternative minimum taxable income a portion of the fair market value of the stock acquired through the exercise of the option."
See Form 6251, Alternative Minimum Tax - Individuals, and its Instructions for more information.
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WHAT IS FORM 3921?
Form 3921 is an IRS Form that reports the exercise of an employee Incentive Stock Option (ISOs). Note that ISO’s can only be issued to startup employees, not contractors.
WHEN DO STARTUPS NEED TO FILE A 3921 FORM?
If you are a startup that has employees who exercised Incentive Stock Options (ISOs), you will need to provide Form 3921 to those employees, and file with the IRS, by Jan 31 of the following year.
For example, if your employee exercised ISOs in June 2020, you will need to provide a 2020 Form 3921 to the employee by no later than Jan 31 2021. It’s best practice to provide these forms to the employees as soon as the year closes, i.e. early in January, rather than waiting until Jan 31.
Will the company owe any taxes on the employees exercise of ISOs and Form 3921?
No, the startup will not owe any taxes on the employees exercise of ISOs and Form 3921.
Form 3921 is an informational report, similar to 1099s, that lets the IRS know that certain individuals/entities received compensation. This makes it easier for the IRS to hold people accountable to the income that they report on their personal/entity income tax return.
WHAT INFORMATION IS NEEDED TO COMPLETE THE FORM 3921?
You will need to gather the following information in order to complete Form 3921, which you can retrieve from your HR records and Stock Leger (available from your Legal Team or Carta):
- Startup’s Legal Name
- Startup’s Address
- Startup’s FEIN (aka TIN)
- Employee’s Legal Name
- Employee’s Address
- Employee’s SSN
- Date of Option Grant
- Date of Option Exercise
- Exercise Price per Share
- FMV per Share on Exercise Date
- Number of Shares Transferred
As a startup company, we use Carta to manage our Cap Table, Stock Issuances, and Stock Exercises. I noticed that I can file 3921s within Carta but I need a TCC (Transmitter Control Code). Where is that?
In order to file your 3921s on Carta, you will first need to apply for a TCC (Transmitter Control Code) with Form 4419. There are a few things you should note here:
- Carta will fill the 3921 form, but they cannot file the form 3921 without your TCC. Your TCC code is unique to your company, much like an FEIN number.
- You need to submit this application by no later than Nov 1 if you wish to file Informational Returns for the tax year in question.
- The process takes 45+ days to complete. Because of these impediments, we highly recommend that you copy and transfer the 3921 information over to Track1099, where you will be able to file the same day. Copy and pasting each form over takes less than 30 seconds, as there is limited information.
- If you have less than one hundred 3921’s to file, we highly recommend skipping the TCC application and filing on Track1099.
As a startup employee, what do I need to do with Form 3921?
As a startup employee, you will need to file Form 3921 with you personal taxes on Form 1040, which is due by Apr 15th of every year and can be extended to Oct 15th of every year. You can either input this information into TurboTax (and most other online tax software) yourself, or give the form to your preferred tax provider.
AS A STARTUP EMPLOYEE, WILL I OWE TAXES ON FORM 3921?
As a startup employee who exercises an Incentive Stock Option (ISOs), you wont pay taxes until you sell the stock. This differs from NonQualified Stock Options (NQSOs), where the exerciser is taxed upon the exercise of the NQSO.
Where can I learn more about the exercise of ISOs and NQSOs, and how the startup taxes work?
You can learn more about ISO (Incentive Stock Option), or an NQSO (Non-Qualified Stock Option) here. As always, if you have any questions on this, feel free to contact Kruze. We have a dedicated tax team willing and happy to help you out.
Copy A of this form is provided for informational purposes only. Copy A appears in red, similar to the official IRS form. The official printed version of Copy A of this IRS form is scannable, but the online version of it, printed from this website, is not. Do not print and file copy A downloaded from this website; a penalty may be imposed for filing with the IRS information return forms that can’t be scanned. See part O in the current General Instructions for Certain Information Returns, available at www.irs.gov/form1099, for more information about penalties.
Please note that Copy B and other copies of this form, which appear in black, may be downloaded and printed and used to satisfy the requirement to provide the information to the recipient.
To order official IRS information returns, which include a scannable Copy A for filing with the IRS and all other applicable copies of the form, visit www.IRS.gov/orderforms. Click on Employer and Information Returns, and we’ll mail you the forms you request and their instructions, as well as any publications you may order.
Information returns may also be filed electronically using the IRS Filing Information Returns Electronically (FIRE) system (visit www.IRS.gov/FIRE) or the IRS Affordable Care Act Information Returns (AIR) program (visit www.IRS.gov/AIR).
See IRS Publications 1141, 1167, and 1179 for more information about printing these tax forms.
TRANSFEROR’S name, street address, city or town, state or province, country, and ZIP or foreign postal code
1 Date option granted
2 Date option exercised
OMB No. 1545-2129
Form 3921
(Rev. October 2017)
Exercise of an Incentive Stock Option Under Section 422(b)
Street address (including apt. no.)
City or town, state or province, country, and ZIP or foreign postal code
Account number (see instructions)
3
Exercise price per share
$
4 Fair market value per share
$
5 No. of shares transferred
6 If other than TRANSFEROR, name, address, and TIN of corporation whose stock is being transferred
Copy A
For Internal Revenue Service Center
File with Form 1096. For Privacy Act and Paperwork Reduction Act Notice, see the current version of the General Instructions for
Certain Information Returns.
Form 3921 (Rev. October 2017)
Cat. No. 41179O
www.irs.gov/Form3921
Department of the Treasury - Internal Revenue Service
Do Not Cut or Separate Forms on This Page — Do Not Cut
Warning: This information is for informational purposes only and should not be used for official tax matters. Use the official Form 3921 and instructions, generally found at: //www.irs.gov/forms-instructions. Rely on this information at your own risk. Visit //www.irs.gov/forms-instructions for official IRS information. Consult with a tax professional.
TRANSFEROR’S name, street address, city or town, state or province, country, and ZIP or foreign postal code
1 Date option granted
2 Date option exercised
OMB No. 1545-2129
Form 3921
(Rev. October 2017)
Exercise of an Incentive Stock Option Under Section 422(b)
Street address (including apt. no.)
City or town, state or province, country, and ZIP or foreign postal code
Account number (see instructions)
3 Exercise price per share
$
4 Fair market value per share
$
5 No. of shares transferred
6 If other than TRANSFEROR, name, address, and TIN of corporation whose stock is being transferred
Copy B
This is important tax information and is being furnished to the IRS. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this item is required to be reported and the IRS determines that it has not been reported.
Form 3921 (Rev. October 2017)
(keep for your records)
www.irs.gov/Form3921
Department of the Treasury - Internal Revenue Service
Warning: This information is for informational purposes only and should not be used for official tax matters. Use the official Form 3921 and instructions, generally found at: //www.irs.gov/forms-instructions. Rely on this information at your own risk. Visit //www.irs.gov/forms-instructions for official IRS information. Consult with a tax professional.
Instructions for Employee
You have received this form because your employer (or transfer agent) transferred your employer’s stock to you pursuant to your exercise of an incentive stock option (ISO). You must recognize (report) gain or loss on your tax return for the year in which you sell or otherwise dispose of the stock. Keep this form and use it to figure the gain or loss. For more information, see Pub. 525, Taxable and Nontaxable Income.
When you exercise an ISO, you may have to include in alternative minimum taxable income a portion of the fair market value of the stock acquired through the exercise of the option. For more information, see Form 6251, Alternative Minimum Tax—Individuals, and its instructions.
Employee’s taxpayer identification number (TIN). For your protection, this form may show only the last four digits of your social security number (SSN), individual taxpayer identification number (ITIN), or adoption taxpayer identification number (ATIN). However, the employer has reported your complete TIN to the IRS.
Account number. May show an account or other unique number your employer or transfer agent assigned to distinguish your account.
Box 1. Shows the date the option to purchase the stock was granted to you.
Box 2. Shows the date you exercised the option to purchase the stock.
Box 3. Shows the exercise price per share of stock.
Box 4. Shows the fair market value (FMV) of a share of stock on the date the option was exercised.
Box 5. Shows the number of shares of stock transferred to you pursuant to the exercise of the option.
Box 6. Shows the name, address, and TIN of the corporation whose stock is being transferred (if other than the corporation shown in TRANSFEROR boxes in the upper left corner of the form).
Future developments. For the latest information about developments related to Form 3921 and its instructions, such as legislation enacted after they were published, go to www.irs.gov/Form3921.
Warning: This information is for informational purposes only and should not be used for official tax matters. Use the official Form 3921 and instructions, generally found at: //www.irs.gov/forms-instructions. Rely on this information at your own risk. Visit //www.irs.gov/forms-instructions for official IRS information. Consult with a tax professional.
TRANSFEROR’S name, street address, city or town, state or province, country, and ZIP or foreign postal code
1 Date option granted
2 Date option exercised
OMB No. 1545-2129
Form 3921
(Rev. October 2017)
Exercise of an Incentive Stock Option Under Section 422(b)
Street address (including apt. no.)
City or town, state or province, country, and ZIP or foreign postal code
Account number (see instructions)
3 Exercise price per share
$
4 Fair market value per share
$
5 No. of shares transferred
6 If other than TRANSFEROR, name, address, and TIN of corporation whose stock is being transferred
Copy C
For Corporation
This copy should be retained by the corporation whose stock has been transferred under Section 422(b).
Form 3921 (Rev. October 2017)
(keep for your records)
www.irs.gov/Form3921
Department of the Treasury - Internal Revenue Service
Warning: This information is for informational purposes only and should not be used for official tax matters. Use the official Form 3921 and instructions, generally found at: //www.irs.gov/forms-instructions. Rely on this information at your own risk. Visit //www.irs.gov/forms-instructions for official IRS information. Consult with a tax professional.
▢ VOID
▢ CORRECTED (if checked)
TRANSFEROR’S name, street address, city or town, state or province, country, and ZIP or foreign postal code
1 Date option granted
2 Date option exercised
OMB No. 1545-2129
Form 3921
(Rev. October 2017)
Exercise of an Incentive Stock Option Under Section 422(b)
Street address (including apt. no.)
City or town, state or province, country, and ZIP or foreign postal code
Account number (see instructions)
3
Exercise price per share
$
4 Fair market value per share
$
5 No. of shares transferred
6 If other than TRANSFEROR, name, address, and TIN of corporation whose stock is being transferred
Copy D
For Transferor
For Privacy Act and Paperwork Reduction Act Notice, see the current version of the General Instructions for Certain Information Returns.
Form 3921 (Rev. October 2017)
www.irs.gov/Form3921
Department of the Treasury - Internal Revenue Service
Warning: This information is for informational purposes only and should not be used for official tax matters. Use the official Form 3921 and instructions, generally found at: //www.irs.gov/forms-instructions. Rely on this information at your own risk. Visit //www.irs.gov/forms-instructions for official IRS information. Consult with a tax professional.
Instructions for Transferor
To complete Form 3921, use:
• the current General Instructions for Certain Information Returns, and
• the current Instructions for Forms 3921 and 3922. To order these instructions and additional forms, go to www.irs.gov/Form3921.
Caution: Because paper forms are scanned during processing, you cannot file Forms 1096, 1097, 1098, 1099, 3921, 3922, or 5498 that you print from the IRS website.
Due dates. Furnish Copy B of this form to the employee by January 31 of the year following the year of exercise of the ISO.
Furnish Copy C of this form to the corporation whose stock is being transferred by January 31 of the year following the year of exercise of the ISO.
File Copy A of this form with the IRS by February 28 of the year following the year of exercise of the ISO. If you file electronically, the due date is March 31 of the year following the year of exercise of the ISO. To file electronically, you must have software that generates a file according to the specifications in Pub. 1220. The IRS does not provide a fill-in form option for Copy A.
Need help? If you have questions about reporting on Form 3921, call the information reporting customer service site toll free at 866-455-7438 or 304-263-8700 (not toll free). Persons with a hearing or speech disability with access to TTY/TDD equipment can call 304-579-4827 (not toll free).
Warning: This information is for informational purposes only and should not be used for official tax matters. Use the official Form 3921 and instructions, generally found at: //www.irs.gov/forms-instructions. Rely on this information at your own risk. Visit //www.irs.gov/forms-instructions for official IRS information. Consult with a tax professional.
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