Whatever the groundhog prognosticates about the remaining winter, we know for sure that tax-return season is coming. As this blog recently stated, employees should by now have received Form W-2 from their companies. If you had income from stock compensation or an employee stock purchase plan in 2014, you must understand where that income is reported on Form W-2 so that you can complete your tax return properly (for help, see our FAQs with annotated W-2 diagrams).
But Form W-2 is not the only important piece of tax paperwork that companies are sending these days. In 2014, did you buy shares in your company's employee stock purchase plan (ESPP)? Did you exercise incentive stock options (ISOs)? If so, you should have by now received from your company either IRS Form 3922 (for ESPPs) or IRS Form 3921 (for ISOs). Companies must issue these forms to employees by the end of January, and they must also file them with the IRS (though the IRS filing need not occur until the end of March if it is electronic). For employees, many companies issue the information on their own substitute statements instead of using the actual IRS forms. A substitute statement allows a company to aggregate all purchases or exercises in one form rather than issuing a separate IRS form for each transaction.
The Uses Of Forms 3922 And 3921
While Forms 3922 and 3921 may seem confusing at first glance, they are useful because they can help you gather information you will need to prepare your tax return. As the forms also ensure that the IRS has ample information about your ESPP purchases and ISO exercises, they mean that accurate and timely tax-return reporting is more important than ever.
To help companies and participants understand these forms and the related tax rules, myStockOptions.com has an article and FAQ on Form 3922 for ESPPs and an article and FAQ on Form 3921 for ISOs. These include annotated examples of the forms that translate IRS jargon into understandable language. This content is available in the ESPP and ISO tax sections of both myStockOptions.com and the Knowledge Centers that we license to companies and stock plan service providers. Our articles and FAQs are also individually available for licensing (for details, please contact us at email@example.com).
Each ESPP purchase is reported on a separate Form 3922, which presents the following information:
- date of grant (usually the beginning of the offering period)
- stock FMV on the date of grant
- purchase price per share
- price per share had the grant date been the purchase date (for purchases where the purchase price was not fixed or determinable on the grant date)
- purchase date
- stock FMV on the purchase date
- date of transfer of legal title
- number of shares for which legal title is transferred
Each ISO exercise is reported on a separate Form 3921, which shows the following details:
- grant date
- exercise price per share
- exercise date
- the stock FMV on the exercise date
- number of shares exercised
If last year you sold shares acquired from an ESPP or from ISOs, you will want to see the FAQs of the section Reporting Company Stock Sales in the Tax Center at myStockOptions.com. These FAQs clearly explain how the information on Forms 3922 and 3921 can help you accurately complete IRS Form 8949 when you prepare your tax return. The FAQs also have helpfully annotated diagrams of Form 8949 and Schedule D.