Form 3921 is a tax form that must be filled out by companies who issue their employees Incentive Stock Options (ISOs) during the tax year. This form is also known as the Exercise of an Incentive Stock Option Under Section 422(b) form.
In this article, we will discuss what Form 3921 is, why it is important, and how to fill it out and file it.
What is Form 3921?
Form 3921 is a tax form that must be filed by companies that grant their employees Incentive Stock Options (ISOs). An ISO is a type of stock option that allows the employee to purchase company stock at a discounted price. ISOs are typically granted as part of an employee’s compensation package and are subject to certain tax rules.
The purpose of Form 3921 is to report the exercise of an ISO and to provide the IRS and the employee with information about the transaction. The form reports the date the option was granted, the exercise price, the fair market value of the stock on the date of exercise, and the number of shares acquired.
Why is Form 3921 important?
Form 3921 is important for both the employer and the employee. For the employer, the form is necessary to ensure that they are complying with tax laws and regulations. Failure to file the form or to provide accurate information can result in penalties and fines.
For the employee, Form 3921 provides important information for calculating their tax liability. The fair market value of the stock on the date of exercise is used to determine the employee’s taxable income. If the employee sells the stock, the information on the form will be used to calculate their capital gains or losses.
How to fill out Form 3921
Filling out Form 3921 is relatively straightforward. Here are the steps to follow:
Step 1: Enter the employer’s name, address, and employer identification number (EIN).
Step 2: Enter the employee’s name, address, and social security number (SSN).
Step 3: Enter the date the ISO was granted.
Step 4: Enter the exercise price per share.
Step 5: Enter the fair market value of the stock on the date of exercise.
Step 6: Enter the number of shares acquired.
Step 7: Calculate the amount of compensation income by subtracting the exercise price from the fair market value and multiplying by the number of shares acquired.
Step 8: Enter the date of exercise.
Step 9: Sign and date the form.
How to file Form 3921
Form 3921 must be filed with the IRS and provided to the employee by January 31st of the year following the year in which the ISO was exercised. The form can be filed electronically or on paper.
If filing electronically, the employer must use the IRS’s FIRE (Filing Information Returns Electronically) system. The employee will receive a copy of the form electronically.
If filing on paper, the employer must send a copy of the form to the IRS along with a Form 1096, which is a summary of all the forms being filed. The employer must also provide a copy of the form to the employee.
In conclusion, Form 3921 is an important tax form that must be filed by companies that grant their employees Incentive Stock Options. The form provides important information for calculating tax liability and must be filed with the IRS and provided to the employee by January 31st of the year following the year in which the ISO was exercised. Filling out the form is straightforward, and employers can choose to file electronically or on paper.