Form 3921: due dates and how to file for ISO exercises

Form 3921 is the information return a corporation files for each exercise of an incentive stock option (ISO) during the year. For exercises in 2026, the company must give each employee their copy by February 1, 2027 and file with the IRS by March 1, 2027 on paper or March 31, 2027 electronically.

The form reports what the employee needs to work out their alternative minimum tax: the grant date, the exercise date, the exercise price, the fair market value on the exercise date and the number of shares. It carries no income or withholding amount. The obligation sits with the company, so a startup whose first employees exercise early options has a filing to make even if it has never filed a Form 1099.

Did an employee exercise an ISO this year?

If any employee exercised an incentive stock option in 2026, the company owes one Form 3921 for each exercise. Under section 6039 of the Internal Revenue Code, every corporation that transfers stock because someone exercised an ISO must file a return for that calendar year and give that person a written statement.

The Instructions for Forms 3921 and 3922 (Rev. April 2025) make the count explicit: file a Form 3921 "for each transfer made during that year." An employee who exercises three times gets three forms, not one summary.

There is one exception. No form is needed for an employee who is a nonresident alien and who did not need a Form W-2 from the company in any year from the year of grant through the year of exercise. Form 3922 is a separate return for shares bought through an employee stock purchase plan.

Which options count as ISOs

Only options that qualify under section 422 go on Form 3921. Nonstatutory options, often called NSOs, do not, and section 6039(c) says the company's own treatment of an option decides which kind it is for this purpose, so the grant documents settle the question.

The most common way an option stops being an ISO is the $100,000 limit in section 422(d). When the fair market value of stock under ISOs that first become exercisable for one person in one calendar year exceeds $100,000, the excess is treated as options that are not incentive stock options. Value is measured on the grant date, and options count in the order they were granted.

Say an employee holds options on 120,000 shares, granted when a 409A valuation set the common stock at $1.00 a share, and a vesting acceleration makes all of them exercisable for the first time in 2026. Options on 100,000 shares, $100,000 of stock, stay ISOs. The other 20,000 are treated as nonstatutory, and an exercise of those does not go on Form 3921.

When is Form 3921 due

Form 3921 has two deadlines. The employee's copy is due January 31, and the IRS copy is due February 28 on paper or March 31 electronically, in the year after the exercise. When a date falls on a weekend or legal holiday, it moves to the next business day, which pushes two of the 2027 dates into the following week.

The January 31 date for the employee statement is in section 6039(b). The IRS filing dates and the weekend rule come from the General Instructions for Certain Information Returns (2025), whose table lists Form 3921 as due February 28 to the IRS, March 31 if e-filed, and January 31 to the recipient. January 31, 2027 and February 28, 2027 are both Sundays, so the 2027 dates are February 1 and March 1.

Paper filing is rarely an option. Since January 1, 2024, a company that files 10 or more information returns in a year must e-file them, and the 10 counts all types together, so Forms 3921 and the 1099-NECs you send contractors add up. Even on paper, the IRS copy cannot be printed from the IRS website, because the IRS scans Copy A and only accepts the official printed form. Copy B for the employee can be filled in online.

A worked example: three exercises, three forms

Here is one startup's 2026. Its 409A valuation put the common stock at $1.20 a share in February and $2.40 after a priced round in September. Two employees exercised vested ISOs, one of them twice, so the company owes three Forms 3921.

The spread is box 4 minus box 3, times box 5. It is not a box on the form, but it is the number each employee needs. Employee B's two exercises share a grant and an exercise price, and still need two forms, because the fair market value and the date differ.

The same company paid eight contractors enough to need a Form 1099-NEC each. Three Forms 3921 plus eight 1099-NECs is 11 information returns, so all of them must be e-filed. The three Forms 3921 go to the IRS by March 31, 2027, and Employees A and B get their copies by February 1, 2027.

What the employee does with Form 3921

An employee owes no regular income tax when they exercise an ISO, but the spread counts for the alternative minimum tax. IRS Publication 525 says to enter the amount by which the fair market value exceeds the option price on Form 6251, line 2i, once the shares are transferable or no longer at risk of forfeiture.

For Employee A in the example, that is an $8,000 adjustment in 2026, and the AMT basis in the 10,000 shares rises by the same $8,000. No adjustment is needed if the shares are sold in the same year as the exercise. Whether the adjustment produces any AMT depends on the rest of the employee's return.

The dates on the form also decide how a later sale is taxed. Gain is generally capital gain only if the employee holds the shares past the later of 2 years from the grant and 1 year from the exercise. Employee A's grant was March 1, 2023 and exercise April 15, 2026, so the shares must be held through April 15, 2027. A sale before that is a disqualifying disposition, and part of the gain becomes ordinary income reported on the employee's W-2.

What are the penalties for a late Form 3921

A late or incorrect Form 3921 can draw two penalties: one under section 6721 for the copy filed with the IRS and one under section 6722 for the copy owed to the employee. For returns and statements due in 2027, each is $60, $130 or $340 per form, depending on how late the correction comes.

Rev. Proc. 2025-32 sets the 2027 amounts, the same for both penalties:

For the three forms in the example, filing and furnishing them in May 2027 would cost 3 × $130 for the IRS copies and 3 × $130 for the employee copies, $780 in all. Never filing them would cost 3 × $340 twice, $2,040. Intentional disregard starts at $690 per form with no maximum. The penalties do not apply when the company can show reasonable cause and not willful neglect.

What to do before January

Form 3921 is easiest when the data is collected as each exercise happens, not reconstructed in January from a cap table. Every box comes from records the company already keeps: the option grant, the exercise notice and the 409A valuation in force on the exercise date.

1. Pull every ISO exercise from January 1 to December 31, 2026 from the cap table, one line per exercise.
2. For each, record the grant date, the exercise date, the exercise price, the fair market value on the exercise date and the number of shares.
3. Check each option's ISO status against the $100,000 limit, and leave exercises of nonstatutory options off.
4. Confirm each employee's name, address and taxpayer identification number. Copy B may show a truncated number, and the IRS copy may not.
5. Count every information return you will file for 2026, including Forms 1099-NEC, and e-file if the total is 10 or more.
6. Send employee copies by February 1, 2027, electronically only to employees who consented to receive them that way, and file with the IRS by March 31, 2027.

The exercise also moves money: the employee pays the exercise price, and the company records new shares and cash. LedgerIt keeps a startup's books, so the cash and the new shares from each exercise are recorded in the month they happen, not rebuilt in January. If an employee is exercising unvested shares, they have a separate deadline of their own: an 83(b) election is due 30 days after the transfer.