Form 3921: Reporting employee ISO exercises

What is Form 3921?

Form 3921 is an IRS form used by corporations to report when an employee exercises an incentive stock option (ISO) in the last tax year. Officially titled "Exercise of an Incentive Stock Option Under Section 422(b)," Form 3921 documents and reports the details of the transaction to the Internal Revenue Service (IRS) to ensure accurate tax reporting and compliance for your company. The employee uses the details on Form 3921 to check whether the alternative minimum tax (AMT) applies and to establish the cost basis of the shares when they sell.

Your company must file one form for each ISO exercise within the calendar year and provide a copy of Form 3921 to each employee who exercised.

Form 3921 includes the following transaction details:

• The date the option was granted

• The date the option was exercised

• The exercise price per share

• The fair market value (FMV) per share on the exercise date

• The number of shares transferred

Miss the filing deadline, fail to file, or submit forms with significant mistakes, and your company could end up paying fines up to millions of dollars. Here’s everything you need to know to file annual tax Form 3921s on time in 2027.

Note that this article is for informational purposes only, and does not constitute legal, financial, accounting, or tax advice. You should consult a qualified professional advisor before making any decision or taking any action that may affect your business or interests.

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Who must file Form 3921?

Any company whose employees exercised ISOs during the calendar year must file. You file one Form 3921 per exercise, send Copy B to the employee, and file Copy A with the IRS. This holds whether the employee has since left, sold the shares, or done nothing with them.

There's one common exception. You generally don't have to file for an ISO exercise by a nonresident alien if you aren't required to issue that person a Form W-2 that year. The IRS instructions for Forms 3921 and 3922 spell out the details, and a tax advisor can confirm whether an employee qualifies.

Founders are often surprised the obligation exists at all. As Shelby Skoczylas Whitefield, a former manager on Carta's Equity Advisory team, puts it in Carta's webinar Equity Compensation: Three Essentials You're Not Thinking About: “Probably one of the most unknown quantities when I'm talking to employers on a regular basis is this form called the 3921. A Form 3921 needs to be filed any time an employee is exercising incentive stock options that weren't ultimately immediately sold.”

How to file Form 3921

You can file Form 3921 either by mail or online. To file, you'll need three copies of this form:

• File copy A with the IRS, either electronically or by mail

• Give copy B to the employee who exercised options

• Keep copy C for your company's records

If you need to file 10 or more Form 3921s, you must file them electronically by March 31, 2027, for the tax year 2026. Either way, you'll need:

• A list of employees who exercised an ISO in the previous calendar year

• Those employees' tax ID numbers, full names, and addresses

• Your company's transmitter control code (TCC)

Form 3921 deadlines for the 2026 tax year

There are three key deadlines to know for filing Form 3921 on time:

1. February 1, 2027: Deadline to provide copy B to all employees who exercised ISOs in the previous year

2. March 1, 2027: Deadline to file copy A with the IRS if filing on paper

3. March 31, 2027: Deadline to file copy A with the IRS if filing electronically

→ Prepare for tax filing season with free, helpful resources from Carta.

If an IRS filing deadline falls on a holiday or weekend, the deadline is automatically extended to the following business day.

Filing Form 3921 online

First-time electronic filers need a TCC. The IRS now issues one through the online IRIS Application for TCC; the older Form 4419 and FIRE (Filing Information Returns Electronically) system has been retired. Once you have a code, you can file for free through the Information Returns Intake System (IRIS), the IRS portal. This may take a few weeks, so you'll want to start the process at least 45 days before the deadline.

Filing Form 3921 by mail

If you file by mail, you can’t print out the forms yourself. The IRS uses scanning machines that only read IRS-supplied paper, which you can order onIRS.gov at no cost.

Filing Form 3921 through Carta

If you use Carta to prepare Form 3921, filing is easy thanks to an automated process and step-by-step guide. When filing automatically with Carta, you’ll need to provide two additional pieces of information:

• Each employee's email address to distribute Copy B of the form automatically*

• Your company's fair market value on the exercise date, which sets the taxable spread between the FMV and the exercise price

*Note that your company needs to obtain the stockholder's consent to electronic delivery of the Form 3921 on its own (this is not available through Carta)

Form 3921 penalties

If you don't file the correct information by March 1 (paper) or March 31 (e-file), you'll likely pay a penalty. How much you pay depends on when you file the correct form. Note that the penalty amounts below are for the 2026 tax year.

Source: IRS Revenue Procedure 25-32 section 4.57

A "small business" here means average annual gross receipts of $5 million or less over the three most recent tax years. Penalties apply when you don't file or when a form has material errors. An incorrect taxpayer identification number or surname that stops the IRS from processing the return is one common example. Penalty caps increase each year.

What do employees do with Form 3921?

Employees don't file Form 3921 with their return. They keep it and use the numbers on it in two places.

• AMT: Exercising an ISO and holding the shares can create an AMT preference item equal to the spread between the FMV and the exercise price. The employee reports this on Form 6251.

• Cost basis: When the employee sells the shares later, Form 3921 documents the exercise price and date they need to calculate cost basis and any capital gain.

Free AMT calculator

Carta’s free AMT Calculator helps you estimate your potential tax bill.

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Carta generates Form 3921 in one click

Don't get stuck paying fines or waiting for IRS paper to arrive in the mail. With Carta's 3921 product, you can generate every form in seconds. When your cap table is on the platform, it tracks each ISO exercise automatically. At tax time, Carta's system generates three copies of each form. You can deliver copy B to employees with one click and store copy C on the platform for your records.

When you file Form 3921 online with Carta, everything you need is in one place. Just download 3921 copy A and find your TCC code in your settings. From there, it's a matter of following the general instructions on the IRS website.

Request a demo to see how Carta handles Form 3921 filing.

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Note that your company needs to obtain the stockholder's consent to electronic delivery of the Form 3921 on its own (this is not available through Carta).

Frequently asked questions about Form 3921

Who sends Form 3921 to employees?

The company that issued the ISOs sends Copy B to each employee who exercised, by February 1, 2027 for 2026 exercises.

Do employees file Form 3921 with their tax return?

No. Employees keep the form for their records. They use its figures to check whether AMT applies and to set their cost basis when they sell the shares.

What's the difference between Form 3921 and Form 3922?

Form 3921 reports ISO exercises, while Form 3922 reports the first transfer of shares bought through an employee stock purchase plan (ESPP).

Is there a penalty for filing Form 3921 late?

Yes. Penalties start at $60 per form and climb to at least $680 per form for intentional disregard, depending on how late you file and the size of your business.

Can I file Form 3921 myself on paper?

Only on official IRS-supplied paper, which you order from the IRS, because its scanners can't read self-printed copies. If you're filing 10 or more information returns in total, you must file electronically.