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What is Form 3921?

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If employees exercised incentive stock options (ISOs) last tax year, your company needs to file IRS Form 3921. Companies must file one form per ISO exercise, and if they miss the deadline or ignore IRS reminders and fail to file, they could end up paying expensive fines.

Each 3921 has three copies. Your company:

  • Files copy A with the IRS, either electronically or by mail
  • Gives copy B to the employee who exercised options
  • Keeps copy C for your company’s records

How to file Form 3921

You can file form 3921 either by mail or online. If you are required to file 250 or more 3921s, you must file online. Either way, you’ll need a few things to get started:

If it’s your first time filing online and you don’t know what to do, you’ll need to electronically file Form 4419 so the IRS can assign you a TCC, which will allow you to set up a FIRE account. This may take a few weeks.

If you choose to file by mail, you can’t just print out the forms yourself and send them in. The IRS requires you print them on special paper. The IRS uses machines to process the forms and the machines can only read IRS-supplied paper. You can order the special paper on the IRS’ website.

If you use Carta for preparing Form 3921, filing is easy.

Form 3921 deadlines

The deadlines to file are as follows:

  • January 31st: deadline to provide copy B to all employees who exercised ISOs in the previous year
  • February 28th: deadline to file copy A with the IRS on paper
  • March 31st: deadline to file copy A with the IRS electronically

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

Failure to file Form 3921

If you don’t file the correct information by the due date, you’ll likely pay a penalty. How much you pay depends on when you file the correct form. If you correctly file:

  • Within 30 days after the due date you’ll pay $50 per form (i.e. per employee who exercised an ISO)
    • The maximum penalty is $547,000 per year or $191,000 for small businesses (i.e., any business with an average of $5M or less taxable income for the last three years)
  • More than 30 days after the due date, but by August 1st, you’ll pay $100 per form
    • The maximum penalty is $1,641,000 per year or $547,000 for small businesses
  • After August 1st, or if you never correctly file, you’ll pay $270 per form
    • The maximum penalty is $3,282,500 per year or $1,094,000 for small businesses

Penalties only apply if you don’t file or if there are material errors on the submitted forms. For example if the payee’s tax ID number or surname is incorrect and prevents the IRS from processing the return, you would get fined.

Carta generates Form 3921 in one click

Carta’s platform allows you to generate all your 3921s in seconds when you upgrade to our 3921 product.

When your cap table is on Carta, the platform automatically tracks when employees exercise ISOs. When tax season comes around, Carta’s system simply generates three copies of each form. You can even deliver copy B to employees with one click and store copy C on Carta for your records.

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

At Carta, we help startups with fundraising, compensation, valuations, equity management and much more. Talk to us to find out how we can help you grow.

DISCLOSURE: This communication is on behalf of eShares Inc., d/b/a Carta Inc. (“Carta”).  This communication is for informational purposes only, and contains general information only.  Carta is not, by means of this communication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.  This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests.  Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor.  This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. ©2019–21 eShares, Inc. d/b/a Carta, Inc. (“Carta”). All rights reserved. Reproduction prohibited.


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