What is Form 3921?
Form 3921 is an IRS Form that reports the exercise of an employee Incentive Stock Option (ISOs). Note that ISO’s can only be issued to startup employees, not contractors.
When Do Startups Need to File a 3921 Form?
If you are a startup that has employees who exercised Incentive Stock Options (ISOs), you will need to provide Form 3921 to those employees, and file with the IRS, by Jan 31 of the following year.
For example, if your employee exercised ISOs in June 2020, you will need to provide a 2020 Form 3921 to the employee by no later than Jan 31 2021. It’s best practice to provide these forms to the employees as soon as the year closes, i.e. early in January, rather than waiting until Jan 31.
Will the company owe any taxes on the employees exercise of ISOs and Form 3921?
No, the startup will not owe any taxes on the employees exercise of ISOs and Form 3921.
Form 3921 is an informational report, similar to 1099s, that lets the IRS know that certain individuals/entities received compensation. This makes it easier for the IRS to hold people accountable to the income that they report on their personal/entity income tax return.
What Information is Needed To Complete the Form 3921?
You will need to gather the following information in order to complete Form 3921, which you can retrieve from your HR records and Stock Leger (available from your Legal Team or Carta):
- Startup’s Legal Name
- Startup’s Address
- Startup’s FEIN (aka TIN)
- Employee’s Legal Name
- Employee’s Address
- Employee’s SSN
- Date of Option Grant
- Date of Option Exercise
- Exercise Price per Share
- FMV per Share on Exercise Date
- Number of Shares Transferred
As a startup company, we use Carta to manage our Cap Table, Stock Issuances, and Stock Exercises. I noticed that I can file 3921s within Carta but I need a TCC (Transmitter Control Code). Where is that?
In order to file your 3921s on Carta, you will first need to apply for a TCC (Transmitter Control Code) with Form 4419. There are a few things you should note here:
- Carta will fill the 3921 form, but they cannot file the form 3921 without your TCC. Your TCC code is unique to your company, much like an FEIN number.
- You need to submit this application by no later than Nov 1 if you wish to file Informational Returns for the tax year in question.
- The process takes 45+ days to complete. Because of these impediments, we highly recommend that you copy and transfer the 3921 information over to Track1099, where you will be able to file the same day. Copy and pasting each form over takes less than 30 seconds, as there is limited information.
- If you have less than one hundred 3921’s to file, we highly recommend skipping the TCC application and filing on Track1099.
As a startup employee, what do I need to do with Form 3921?
As a startup employee, you will need to file Form 3921 with you personal taxes on Form 1040, which is due by Apr 15th of every year and can be extended to Oct 15th of every year. You can either input this information into TurboTax (and most other online tax software) yourself, or give the form to your preferred tax provider.
As a Startup Employee, Will I Owe Taxes on Form 3921?
As a startup employee who exercises an Incentive Stock Option (ISOs), you wont pay taxes until you sell the stock. This differs from NonQualified Stock Options (NQSOs), where the exerciser is taxed upon the exercise of the NQSO.
Where can I learn more about the exercise of ISOs and NQSOs, and how the startup taxes work?
You can learn more about ISO (Incentive Stock Option), or an NQSO (Non-Qualified Stock Option) here. As always, if you have any questions on this, feel free to contact Kruze. We have a dedicated tax team willing and happy to help you out.