IRS Form 3921 Explained: Purpose, Instructions, Filing Requirements & Deadlines for ISO Reporting

IRS Form 3921 Explained – Incentive Stock Options (ISOs) offer valuable tax advantages, but exercising them triggers specific IRS reporting obligations. Form 3921 (Exercise of an Incentive Stock Option Under Section 422(b)) is the key information return that corporations must file and furnish to employees. This guide breaks down its purpose, who files it, step-by-step instructions, filing requirements, deadlines, and penalties—based on the latest IRS guidance (Rev. April 2025 instructions for tax years 2025 and later).

What Is IRS Form 3921?

Form 3921 reports each transfer of stock to an employee (or former employee) who exercised an ISO under Internal Revenue Code Section 422(b) in a given calendar year. Corporations issue one Form 3921 per exercise event (i.e., per transfer of shares).

The form has three copies:

  • Copy A — Filed with the IRS (red ink).
  • Copy B — Furnished to the employee (keep for your records).
  • Copy C — Retained by the corporation.

Employees receive Form 3921 (or a substitute statement) because the bargain element (fair market value minus exercise price) is an adjustment for Alternative Minimum Tax (AMT) purposes, even though it is not ordinary income at exercise.

Purpose of Form 3921

The IRS uses Form 3921 to:

  • Track ISO exercises for compliance with Section 422 rules (e.g., $100,000 annual limit, holding periods for qualifying dispositions).
  • Help employees correctly calculate AMT in the year of exercise and capital gains/losses upon sale or disposition.
  • Ensure corporations meet Section 6039 reporting requirements.

Employees use it to:

  • Report the spread (FMV – exercise price) on Form 6251 (AMT).
  • Determine basis and holding period for future stock sales (reported on Form 8949/Schedule D).

No immediate regular income tax is due at exercise for a qualifying ISO.

Who Must File Form 3921?

Every corporation (including the issuing company, related corporations, agents, brokers, or payroll controllers) that transfers stock pursuant to an ISO exercise must file one Form 3921 per transfer.

Exception: No form is required for nonresident alien employees if the corporation is not required to issue them a Form W-2 during the relevant period (grant year through exercise year).

Note: Form 3921 is not required for:

  • Exercises of non-qualified stock options (NSOs).
  • The portion of an ISO exceeding the $100,000 first-exercisable limit in a year.
  • Post-termination exercises treated as NSOs (more than 3 months after termination, or 1 year for disability).

Step-by-Step Instructions: How to Fill Out Form 3921?

Use the official fillable PDF at IRS.gov/Form3921 or tax software. Here are the key fields:

Top section (Transferor = Corporation; Employee = Transferee)

  • Transferor’s name, address, EIN
  • Employee’s name, address, TIN (SSN/ITIN)
  • Account number (required if multiple Forms 3921 for the same employee; recommended for all)

Numbered boxes

  1. Date option granted — Grant date of the ISO.
  2. Date option exercised — Exercise date.
  3. Exercise price per share ($) — Price paid per share.
  4. Fair market value per share on exercise date ($) — FMV on exercise date (use 409A valuation or closing price if public).
  5. No. of shares transferred — Number of shares issued upon exercise.
  6. If other than TRANSFEROR, name, address, and TIN of corporation whose stock is being transferred — Complete only if a different entity’s stock was issued.

Truncate the employee’s TIN on Copy B (last 4 digits only), but report the full TIN to the IRS.

Filing Requirements

  • To employee → Furnish Copy B (or substitute statement) by the due date.
  • To IRS → File Copy A (paper with Form 1096 transmittal or electronically via FIRE/IRIS).

E-filing mandate (effective 2024+): Required if you file 10 or more information returns of any type in a year (aggregated). Use IRIS (free online portal) or FIRE system.

Paper filings go to the appropriate IRS center listed in the General Instructions for Certain Information Returns.

Deadlines for Form 3921 (2025 Exercises Reported in 2026)

Action Deadline (2025 exercises) Notes
Furnish Copy B to employee February 2, 2026 Standard Jan 31; adjusted for weekend/holiday
File Copy A with IRS (paper) March 2, 2026 Use Form 1096
File Copy A with IRS (electronic) March 31, 2026 Required for 10+ returns

For future years, deadlines generally fall on January 31 (furnish) / February 28 (paper file) / March 31 (e-file), adjusted to the next business day.

Penalties for Non-Compliance

Penalties under Sections 6721 and 6722 apply:

  • Late or incorrect filing/furnishing: $60–$340 per return/statement (inflation-adjusted), with annual caps.
  • Intentional disregard: Higher penalties with no maximum.
  • Failure to e-file when required: Additional $340+ per return.

Small businesses have lower caps. Always correct errors promptly to reduce penalties.

Common Questions (FAQs)

Do employees report anything on their tax return from Form 3921?
Not for regular tax at exercise, but include the spread on Form 6251 for AMT. Keep the form for future sale calculations.

Can I file electronically?
Yes—and required for most filers. IRIS is the recommended free method for 2025+.

What if the stock was sold the same day?
Still file Form 3921; use the sale price as FMV if it reflects fair value.

Is Form 3921 required for ESPPs?
No—use Form 3922 for qualifying ESPP transfers.

Final Tips for Compliance

  • Maintain accurate grant/exercise records.
  • Use third-party equity platforms (e.g., Carta, Shareworks) that automate Form 3921 generation and filing.
  • Review IRS.gov/Form3921 annually for updates.
  • Consult a tax advisor for complex situations (e.g., disqualifying dispositions, AMT credit carryforwards).

By filing Form 3921 correctly and on time, corporations avoid penalties while helping employees manage ISO tax implications effectively. For the latest forms and instructions, visit the official IRS pages:

  • Form 3921: irs.gov/Form3921
  • Instructions: irs.gov/instructions/i3921
  • General Information Returns: irs.gov/instructions/i1099gi

This article reflects IRS guidance as of early 2026. Tax rules can change—always verify with primary IRS sources or a qualified professional.