The short answer: Form 3921 is an information return a corporation must file for every incentive stock option (ISO) exercise during the year. It reports the grant date, exercise date, exercise price, fair market value on the exercise date and number of shares, which employees need to work out alternative minimum tax. Copy B goes to the employee by January 31, and Copy A goes to the IRS by February 28 on paper or March 31 electronically. For a private company, the Box 4 fair market value usually comes from a current 409A valuation.
Key Takeaways
- Who files: the corporation whose ISOs were exercised, not the employee.
- How many: one form for each ISO exercise, not one per employee.
- Deadlines: January 31 to employees; February 28 (paper) or March 31 (e-file) to the IRS.
- E-file: required if you file 10 or more information returns of any type in the year.
- The key number: Box 4, fair market value on the exercise date, which sets the employee’s AMT spread.
- Penalties: $60 to $340 per form for returns due in 2027, doubled if the employee copy is also missed.
Form 3921 feels minor until it is missed. It has its own deadlines and penalties, and one field, the fair market value on the exercise date, affects every employee’s alternative minimum tax. This guide walks through it in plain language and shows where the numbers come from.
What FICA Tax Actually Is
Form 3921, formally “Exercise of an Incentive Stock Option Under Section 422(b)”, is an information return a corporation files with the IRS for each ISO exercise by an employee. It is not a tax payment and does not by itself create a tax bill. Its job is to record the grant, the exercise, the price paid and the value received, so the IRS and the employee can work out any tax the exercise triggers.
A separate form is filed for every ISO exercise. Ten employees who each exercise once means ten forms. One employee who exercises on three different dates may receive three.
The Three Copies
| Copy | Goes to | How |
|---|---|---|
| Copy A | The IRS | Filed electronically, or on the official red-ink scannable form if you are allowed to paper-file |
| Copy B | The employee | Furnished by January 31; can be printed on plain paper or delivered electronically with the employee's consent |
| Copy C | Company records | Kept by the corporation |
If you paper-file Copy A, you cannot print it from the PDF on plain paper. The IRS scans Copy A and only accepts its official red-ink form, which you order from the IRS. A plain-paper printout can be rejected.
Who Has to File It
The filing obligation sits with the corporation that transferred the stock, not the employee. If your corporation granted ISOs and anyone exercised them during the calendar year, you file Form 3921 early the following year.
Example: you granted ISOs to an engineer in 2022, and she exercises part of them in 2026. That is a reportable event for 2026, so the company gives her Copy B by February 1, 2027 and files Copy A with the IRS. The form records how many shares she received and at what value, not whether she has sold them.
Form 3921 covers ISOs only. Exercises of non-qualified stock options (NSOs) are reported as wages on Form W-2. ISOs over the $100,000 first-exercisable limit, and ISOs a former employee exercises more than three months after leaving, are treated as NSOs.
Why It Exists: The AMT Link
Follow the money at exercise. The employee pays the strike price and receives shares. Because ISOs are usually granted years earlier, the company’s value has often risen, so the shares are worth more than the price paid. That gap, between fair market value on the exercise date and the strike price, is called the bargain element or spread.
Here is the part that surprises people. For regular income tax, exercising an ISO and holding the shares creates no taxable income. For the alternative minimum tax (AMT), the same spread is an adjustment in the year of exercise, so an employee can owe AMT on a paper gain from shares they have not sold and may not be able to sell. If the employee sells the shares in the same year, there is no AMT adjustment; the sale is a disqualifying disposition and the spread is taxed as ordinary income instead.
Worked example: an employee exercises 10,000 ISOs with a $1.10 strike price when the fair market value is $6.40. The AMT spread is ($6.40 minus $1.10) × 10,000 = $53,000. Form 3921 gives the employee each of those figures.
A Box-by-Box Anatomy
Most of Form 3921 is information you already have. One box is the exception, and it drives the tax math.
| Field | What it reports |
|---|---|
| Transferor | Name, address and EIN of the corporation transferring the stock |
| Employee | Name, address and taxpayer identification number of the person who exercised |
| Account number | Optional; used when the company files more than one form for the same employee |
| Box 1 | Date the option was granted |
| Box 2 | Date the option was exercised |
| Box 3 | Exercise (strike) price per share |
| Box 4 | Fair market value per share on the exercise date |
| Box 5 | Number of shares transferred |
| Box 6 | If the stock is issued by a different corporation (for example a parent), that corporation's name, address and EIN |
Boxes 1, 2, 3 and 5 come from your equity records. Box 4 is the variable, and getting it right is a valuation question, not a clerical one.
A Box-by-Box Anatomy
Filing Electronically
Businesses filing 10 or more information returns of any type in total during the year (Forms W-2, 1099 and 3921 combined) must e-file. That threshold dropped from 250 for returns filed from 2024, so most companies issuing ISOs now have to file electronically. First-time filers need a Transmitter Control Code (TCC) from the IRS before they can submit, and approval can take weeks, so apply early.
You will need a list of employees who exercised, their taxpayer identification numbers, the figures for each box, and your TCC or a filing provider that transmits for you.
Filing on Paper
If you are under the e-file threshold, you may paper-file Copy A, but only on the official scannable form ordered from the IRS. The downloadable PDF is for reference only. Copies B and C can be printed normally.
Check the current requirements on the IRS Form 3921 page before you file.
Deadlines That Matter
Form 3921 has three deadlines, staggered across the start of the year after the exercise.
| Obligation | Usual deadline | For 2026 exercises |
|---|---|---|
| Furnish Copy B to employees | January 31 | February 1, 2027 |
| Paper-file Copy A with the IRS | February 28 | March 1, 2027 |
| E-file Copy A with the IRS | March 31 | March 31, 2027 |
Most companies now e-file, so March 31 is the IRS deadline that applies to them, but the January employee deadline is the one that affects people most directly: employees need Copy B to prepare their own returns.
ISO exercises coming up?
Penalties for Late or Incorrect Filing
The penalty for a late or incorrect Form 3921 depends on how late the correct form is filed, and it applies per form. The amounts are adjusted for inflation each year. For returns due in 2027 (2026 exercises), for a company with average annual gross receipts of $5 million or less:
| When the correct form is filed | Penalty per form | Annual cap (small business) |
|---|---|---|
| Filed or corrected within 30 days of the due date | $60 | $244,500 |
| Filed or corrected after 30 days but by August 1 | $130 | $698,500 |
| Filed after August 1, or not filed | $340 | $1,397,000 |
| Intentional disregard | At least $690 | No cap |
Larger companies face the same per-form amounts with higher caps. The penalties stack: failing to file with the IRS and failing to give the employee Copy B are two separate violations, each with its own penalty.
Form 3921 vs. Form 3922
The two forms are easy to mix up. They cover different equity events under different sections of the tax code.
| Form 3921 | Form 3922 | |
|---|---|---|
| Event reported | Exercise of an incentive stock option | First transfer of stock bought under an employee stock purchase plan |
| Code section | Section 422(b) | Section 423(c) |
| Tax effect for the employee in the year of the event | No regular income tax if the shares are held; the spread is an AMT adjustment | None at transfer; the figures matter when the shares are sold |
| Key figure | Box 4, fair market value on the exercise date | FMV on the grant date and the purchase date |
Where Box 4 Comes From
Frequently Asked Questions
1. What is Form 3921?
Form 3921, Exercise of an Incentive Stock Option Under Section 422(b), is an information return a corporation files with the IRS and gives to the employee for each incentive stock option (ISO) exercise during the year. It reports the grant date, exercise date, exercise price, fair market value on the exercise date, and number of shares.
2. When is Form 3921 due?
Copy B must be furnished to employees by January 31. Copy A is due to the IRS by February 28 if filed on paper or March 31 if filed electronically. When a date falls on a weekend or holiday, it moves to the next business day, so for 2026 exercises the dates are February 1, March 1 and March 31, 2027.
3. Does an employee owe tax because we filed Form 3921?
Not because of the form. Exercising an ISO and holding the shares creates no regular income tax, but the spread between fair market value and the exercise price is an adjustment for the alternative minimum tax in the year of exercise. If the shares are sold in the same year, there is no AMT adjustment; the sale is a disqualifying disposition and the spread is taxed as ordinary income.
4. Do we file one form per employee or per exercise?
Per exercise. An employee who exercises options on two different dates, or from two grants, can receive two forms.
5. Do non-qualified stock option exercises go on Form 3921?
No. Form 3921 covers only ISOs. The spread on an NSO exercise is wage income reported on the employee’s Form W-2, or on Form 1099-NEC for a non-employee. Options that exceed the $100,000 ISO limit, or that a former employee exercises more than three months after leaving, are treated as NSOs.
6. Do we have to e-file Form 3921?
Yes, if the company files 10 or more information returns of all types combined during the year, which covers most companies with employees. Electronic filing requires a Transmitter Control Code from the IRS, so apply well before the deadline.
7. What is the penalty for filing Form 3921 late?
For returns due in 2027, $60 per form if corrected within 30 days, $130 if corrected by August 1, and $340 after that or if never filed, with higher minimums and no cap for intentional disregard. A separate penalty of the same size applies for failing to give the employee Copy B.
8. Where does the fair market value in Box 4 come from?
For a public company, the market price on the exercise date. For a private company, usually from a current 409A valuation prepared by an independent appraiser, as long as nothing material has changed since its valuation date.
Filing Form 3921 Soon? Start with a Defensible Box 4.
Countsure prepares independent 409A valuations that give you a fair market value you can stand behind, before the forms go out and the AMT figures reach your employees. Fill out the form below, or book a call directly.
Other Related Services
- When Is a 409A Valuation Required? 7 Critical Trigger Events: the 12-month rule and the events that call for a new valuation.
- Revenue Ruling 59-60: Business Valuation Factors: the fair market value principles behind every 409A valuation.
- What Is a Section 83(b) Election?: how restricted stock and early-exercised shares are taxed.
- ASC 718 Guide: Stock Compensation Accounting: how option grants are expensed in the financial statements.
- Rule 701 for Private Companies Granting Equity: the securities exemption for employee equity.
Parth Shah, Managing Director
(CPA-US, FCA, RV-S&FA, DISA)
Parth Shah who is head of Accounts and Book keeping has experience of more than 10 years. A Certified Public Accountant – US, fellow Chartered Accountant, Registered Valuer and Diploma in Information System Audit.
