About Form 3921, Exercise of an Incentive Stock Option Under Section 422b Internal Revenue Service

IRS Form 3921, Exercise of an Incentive Stock Option Under Section 422(b), reports specific details about the transfer of stock due to an exercise of incentive stock options (ISOs) under a company’s ISO plan or program. So, if the exercise of an incentive stock option took place in March of 2022, the relevant employee should receive Form 3921 from you (Copy B) by January 31, 2023. It’s a good practice to provide Form 3921 to employees who need it even earlier, as this gives them more time to figure out their personal tax return. When employees exercise their incentive stock options (ISOs), companies need to fileForm 3921. You do not report your 3921 on your tax return, but information from the form can aid in determining your basis for the stock options exercised.

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Also, there is paragraph that states , if I want to sell before then, I have to get Administrator’s approval. Click on Form 3921 and then select Jump to form 3921 below the search box. In the same Investment form 3921 turbotax Income section, scroll down to ISO Exercise and Hold and Start. TurboTax will ask if you bought the Incentive Stock Options in 2020 and whether or not they were sold during 2020 through the interview.

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You should always consult with and rely on your own legal and/or tax advisors. Many equity plan management platforms can automate the filing of a range of tax forms, including Form 3921. In the year that you exercise an Incentive Stock Option, the difference between the market value of the stock on the exercise date and the exercise price counts as income under the AMT rules, which can trigger an AMT liability.

Sell shares at least one year and a day after you purchase, but less than two years after the grant date

If your company is filing more than 250 forms, it must be done electronically. 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. 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.

The type of options should be clearly identified in the agreement. If you receive a statutory stock option, don’t include any amount in your income when the option is granted. You will need some basic information in order to file Form 3921, which Pulley can help you generate. First of all, you’ll need a list of all the employees who exercised ISOs in the previous tax year—including their tax ID numbers. There are several components to ISO taxation, based upon the ISO grant, exercise, and sale of underlying stock. The ISO exercise is not subject to regular income tax, but may be subject to AMT.

In this guide, we’ll review how and when to file the all-important Form 3921. We’ll also show you how to use Pulley to generate a fully compliant Form 3921 and create copies that you can send to employees and keep for your own company records. You do need to report the exercise of ISO stock if you did not sell all of the stock before year-end, and you do that by entering Form 3921 into TurboTax.

If your address is incorrect, you should notify the lender and the IRS. Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed. I think it constitutes that I don’t have the right to transfer until 180 days after IPO.

You also must report the sale of the stock on your 2023 Schedule D, Part II as a long-term sale. It is long term because more than one year passed between the date you acquired the stock and the date you sold it. The time at which you sell determines how the proceeds are taxed. The good news is that regardless of the type of option you are awarded, you usually won’t face any tax consequences at the time you receive the option. Per IRS Publication 525 Taxable and Nontaxable Income, starting on page 12.

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This means that if the restriction period ends in 2022, then you will report it in 2022 unless you sell the stock in 2022. Actually you do need to report the exercise of ISO stock if you did not sell all of the stock  before year end, and you do that by entering Form 3921 into TurboTax. The interview you need is the „ISO Exercise and Hold” interview that’s in the „Investment Income” section. That’s where you’ll enter your Form 3921 and that’s where TurboTax gets its information for the AMT adjustment. A Form 3921 may not be required if the employee exercising ISOs is a nonresident alien and doesn’t need to be provided with a Form W-2. For more specifics about who must file Form 3921, see the IRS instructions.

If your company has employees who exercised ISOs in a calendar year, you need to file one Form 3921 per exercise for that calendar year. You can enter the Form 3921 if you sold some or all of the stock during the year and use the ISO „guide me” stock sale interview. In some cases, employees might receive ISOs that vest over time. Box 1 contains the date that this specific set of ISOs vested, becoming eligible for the exercise of option. In most of our articles, we walk you through how to complete the tax form. However, since IRS Form 3921 is issued to taxpayers for informational purposes, most readers will probably want to understand the information reported on their 3921 form, instead of how to complete Form 3921.

For this year you click the option below and it takes you through an interview to add 3921 info so you can report your AMT cost basis correctly. That makes perfect sense, as „I can’t find it and need help” is exactly where you end up after looking everywhere else in the app for two hours. In Box 5, you’ll find the number of shares of stock transferred to you after the exercise of your ISO shares. When you exercise an ISO, you may have to include in AMT income a portion of the fair market value of the stock acquired through the exercise of the option. This is the date that the company granted the option to you.

When you receive form 3921, this means that your employer transferred stock to you because you exercised an incentive stock option (ISO). Because this is a statutory stock option, there are generally no tax consequences for having exercised the option. 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.

It is important to make sure you are filing the forms by the indicated deadlines below. Watch this informative video to learn more about how your employer will report ISOs on Form 3921. Let’s check out the numbered fields, which start on the right-hand side of this tax form. You should see your legal name and address reflected in these fields.

In this example, the amount that is considered compensation is limited to $1,000, your actual gain when you sell the shares, even though your bargain element ($2,500) is higher. Some employers use Incentive Stock Options (ISOs) as a way to attract and retain employees. While ISOs can offer a valuable opportunity to participate in your company’s growth and profits, there are tax implications you should be aware of.

All features, services, support, prices, offers, terms and conditions are subject to change without notice. TurboTax Premium searches 500 tax deductions to get you every dollar you deserve. Also, if you do not have unrestricted access to the stock at the end of 2021, you should enter the information in 2022 when the stock is no longer restricted. Keep the information in your files with all the detail you need to support your position. To be on the safe side, you can enter the information contained in form 3921 in case you are subject to AMT or to have the information available for future sale of the stock.

Incentive stock options (ISOs) are one of the two main types of stock options you’ll encounter in the U.S. ISOs are specifically a product of the U.S. tax code, and what makes them unique is that they can only be granted to a company’s employees. Contractors, consultants, advisors, etc. do not qualify for ISOs and may instead receive non-qualified stock options (NSOs). Well, we know that exercising stock options can have tax implications. Form 3921 is an informational form that helps the IRS (as well as the employee exercising the options) verify what those implications might be.

The due date for all employers to issue IRS Form 3921 to their employees is January 31 of the calendar year following the exercise of ISOs. This includes any former employees who exercised their stock options after leaving the employer. At the time of exercise, there still is not a taxable event that you have to report for income tax purposes, unless you are subject to alternative minimum tax (AMT). These employer stock options are often awarded at a discount or a fixed price to buy stock in the company. While both types of options are often used as bonus or reward payments to employees, they carry different tax implications.

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. As mentioned above you can choose to file your forms through the mail or electronically.

  1. Therefore, keep adequate records for both the AMT and regular tax so that you can figure your adjusted gain or loss.
  2. It is long term because more than one year passed between the date you acquired the stock and the date you sold it.
  3. Not sure if I only need to add this info in if I end up selling a portion of my stocks.
  4. If you purchased (exercised) the stock option, at the price set by the option (grant price), you must submit form 3921 regardless whether or not you sold the stock.
  5. After entering all your other income/deductions/credits information cruise through the „Alternative Minimum Tax” interview that’s under the „Other Tax Situations” tab.

When you sell stock you’ve acquired via the exercise of any type of option, you might face additional taxes. When you exercise an option, you agree to pay the price specified by the option for shares of stock, also called the award, strike, or exercise price. RECORDS Your AMT basis in stock acquired through an ISO is likely to differ from your regular tax basis. Therefore, keep adequate records for both the AMT and regular tax so that you can figure your adjusted gain or loss.

However, any income from the property, or the right to use the property, is included in your income as additional compensation in the year you receive the income or have the right to use the property. When the property becomes substantially vested, you must include its FMV, minus any amount you paid for it, in your income for that year. Your holding period for this property begins when the property becomes substantially vested.

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.

You can notify the IRS of your new address by filing IRS Form 8822, Change of Address. Business owners can notify the IRS of a change in their business address by filing IRS Form 8822-B, Change of Address or Responsible Party, Business. Let’s take a closer look, starting with the transferor boxes at the top of the form. At the top of the form, there is a box marked, “Corrected (if checked).” If your employer must refile a revised version of the form, this should be checked. Before we start breaking down this tax form, it’s important to understand that there can be up to 4 copies of Forms 3921.

You can reference the IRS website () for more general information on when certain IRS Forms must be furnished to recipients. If the IRS finds that your business intentionally avoided the deadline, they can charge you up to $630 per form with no cap. As with most official forms, you can find a copy of Form 3921 on the IRS website. For your convenience, a copy of the form is also available below. All sales that do not meet the criteria of a qualifying disposition are disqualifying dispositions.

Form 3921 Exercise of an Incentive Stock Option Under Section 422(b), is for informational purposes only and should be kept with your records. It does not need to be entered into your return unless you still hold the stock at year end (if you do, see the previous information regarding Alternative Minimum Tax (AMT)). At the time that you sell the stock, you should receive a Federal Form 1099-B Proceeds From Broker and Barter Exchange Transactions which would need to be reported on your tax return. The information on Form 3921 will help in determining your cost or other basis as well as your holding period.

This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. For the latest information about developments related to Forms 3921 and 3922 and their instructions, such as legislation enacted after they were published, go to or According to the IRS you must have the full rights of the stock. Review the example in Publication 525, page 14, under restricted stock.

Companies that use Pulley can generate Form 3921 directly in the platform. We automatically produce the paper copies of the form, and ahead of the 2022 tax season we’ll be able to produce the Copy A file that can be used on the IRS’s FIRE system. The bottom line is that fines can quickly add up if you don’t pay attention to critical details, such as deadlines and the information on the forms themselves. As an employee, you will need to file your 3921 Form with your taxes. 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 sale of company stock meets the criteria for qualifying disposition, and the taxpayer is not subject to AMT, then the employee will pay taxes only on the capital gain. It’s important to take a look at the whole picture of your capital gains and losses for AMT purposes when you sell stock that you purchased by exercising Incentive Stock Options. If the market turns on you after you have exercised your options and the current value of your stock is now less than what you paid, you could still be subject to the Alternative Minimum Tax. The bargain element is calculated as the difference between the exercise price and the market price on the day you exercised the options and purchased the stock.

The account number is required if you have multiple accounts for a person for whom you are filing more than one Form 3921. Additionally, the IRS encourages you to designate an account number for all Forms 3921 that you file. Could you please tell me the buttons I should click to file the form 3921? As of 2022, if your startup has any employees who exercised ISOs in the prior calendar year, you will need to send Form 3921 to those employees by January 31.

This can be either a qualifying disposition or a disqualifying disposition. Unlike example 2, the compensation is calculated as either the bargain element or the actual gain from the sale of the stock – whichever is lower. This is because the market price on the day of the sale is less than that on the day you exercised your option. If you purchased (exercised) the stock option, at the price set by the option (grant price), you must submit form 3921 regardless whether or not you sold the stock.

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