Have you exercised your options recently? Well, then you may need to pay the taxes for it.

Taxes are always confusing when it comes to stock options. But procrastinating till the last minute won’t help and you don’t want to get an extension if you don’t have to. Here is what you need to know about paying taxes once you have exercised your stock options as an employee.

Form 3921 for ISO exercises

The moment you exercise a company ISO option grant, you will get a form 3921 from your company by the 31st of January. This form is used to calculate the capital gains you received so you can pay tax on it. The IRS needs to know whether you were given an ISO or an NSO, so once you get the form, cross-check all the details to see if everything is alright.

form 3921 for employees
Source: IRS.gov

It is very important to check the form because you might need to get it corrected. If there is a mistake, ensure that the form is taken to HR and the needed corrections are made. Moreover, if you haven’t received this form yet even after you have exercised your options, contact your HR team immediately.

To help you out, here are the things to check once you get the form:

  • Is your name and address correct?
  • Is your SSN correct?
  • Is the share quantity correct?
  • Is your exercise price correct?
  • Is the company’s FMV (fair market value) stated correctly?

If any of the information on the form is not right, you need to get it fixed right away. Treat this form like your W2. You can’t file this form by the 15th of April if this form is incorrect. And if you do not file the form on time, you may have to pay penalties for it. So, it is better to check everything properly as the same form is also submitted to the IRS by the company once everything is set.

What does the Employer have to do?

Being the employer, you will have to offer the exercising employee with the “information statement” on Form 3921 on or before the 31st of January of the following calendar year.

Along with this, you will also have to provide the same form to the IRS as an “information return” on or before the 28th of February of the following calendar year (if you file by post) or 31st of March (if you file electronically). These dates may be extended if they fall on a weekend or holiday.

To get the Form 3921, you will have to visit the IRS Website or call 1-800-TAX FORM (829-3676). Once you get the form, fill it and give it to the employee in question and keep a form ready to give to the IRS.

Wrap Up

Regardless of if you are the employee or employer, once the options are exercised by you (or the employee), you will need to file the form 3921 to avoid any penalties by the government. If you want to know more about the various tax rules related to stock options, check out the other knowledge-based articles here!

Did you exercise options? You need to file IRS Form 3921

Have you exercised your options recently? Well, then you may need to pay the taxes for it. Form 3921 for ISO exercises The moment you exercise a company ISO option grant, you will get a form 3921 from your company by the 31st of January. This form is used to calculate the capital gains you … Continued

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