Form 3921: Exercise of an Incentive Stock Option Under Section 422(b)
Report the exercise of incentive stock options by employees.
Filing Deadline
January 31 (to employee) / February 28 (paper) or March 31 (e-file) to IRS
Purpose
Track ISO exercises for AMT and tax reporting
AMT Impact
ISO exercises may trigger Alternative Minimum Tax
Overview
Form 3921 is issued by corporations when an employee exercises an incentive stock option (ISO) granted under an IRC Section 422(b) plan. The form provides information needed for the employee to properly report the exercise and any subsequent sale.
ISOs receive favorable tax treatment if holding period requirements are met, but the exercise spread may be subject to Alternative Minimum Tax (AMT).
Who Must File
Required Filers
- •Corporations that grant incentive stock options
- •Must file for each ISO exercise during the calendar year
- •Required even if employee hasn't sold the shares
- •Applies to options granted under Section 422(b) plans
Form Structure & Instructions
Here's what information is required in each section:
Grant Information
Details about the ISO grant
Share Details
Number of shares and identifying information
Important Filing Notes
Alternative Minimum Tax (AMT)
The spread between FMV (Box 4) and exercise price (Box 3) is a preference item for AMT. You may owe AMT in the year of exercise even with no cash sale.
Holding Period Requirements
For favorable tax treatment, must hold shares at least 2 years from grant date and 1 year from exercise date. If met, all gain is capital gain with no ordinary income.
Disqualifying Disposition
Selling before holding period requirements are met triggers ordinary income equal to lesser of (1) gain on sale or (2) spread at exercise. Employer may report on W-2.
Basis Adjustment for AMT
If you paid AMT, your basis for regular tax purposes may differ from AMT basis. Track both for future sale calculations and potential AMT credit.
ISO Exercise Reporting Excellence
Ensure accurate Form 3921 reporting for employee stock option exercises. We handle the compliance complexity for your equity compensation plans.
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