Now that the year-end has come and gone, many of our entity clients focus on the reporting they have to send out to employees and consultants by January 31st of the New Year. Everyone knows about W-2 reporting and 1099 reporting and usually don’t miss these filings. But did you know about Tax Form 3921 for reporting the exercise of Incentive stock option plans?
As a way to monitor the reporting and the potential taxable income hit for exercising options in a company by employees, back about 5 years ago, the IRS came out with a new tax reporting form to allow them to have visibility into stock option exercises.
Form 3921, “Exercise of an Incentive Stock option under Section 422(b)”, is a tax form that must be filed by January 31st of the next year. This form requires, to be furnished to both the employee and the taxing authorities, 1) the date the option was granted, 2) the date the option was exercised, 3) the exercise price per share, 4) the fair market value per share on exercise date, 5) number of shares transferred. You should NOT report the exercise of nonqualified stock options on this form.
The penalties for not timely filing this form to the employee and the IRS ranges from $50-$280 per form, depending on how late the form is ultimately filed. Please take note that most payroll companies do not address the filing of these forms with corporate clients.
Should you have any other questions, feel free to reach out to your KN+S tax specialist and we can guide you through this process.
Jeffrey Solomon, CPA, CVA, Managing Shareholder at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700.