Form 3922 is a form that companies file and issue to employees who exercised stock options under an Employee Stock Purchase Plan (ESPP). Employers use this form when the exercise price was less than 100% of the stock price on the date the option was granted or is not determinable or fixed.
The Employee Stock Purchase Plan (ESPP) is a benefit offered by many companies as an incentive for employees to buy company stock. By taking advantage of this benefit, you can buy company stock at a discount and invest in your future—assuming that you eventually sell that stock at a profit.
If you’re considering exercising your stock option, you need to be familiar with Internal Revenue Service (IRS) Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c). You’ll receive this document from your employer when tax season arrives. Read on to learn more about what it is and how it works.
What is the purpose of Form 3922?
As its name suggests, the purpose of Form 3922 is to report the transfer of stock acquired through an ESPP. Generally, it’s only used for informational purposes. Employees won’t need to include the information on their tax returns if they don’t sell any of the acquired company stocks.
However, if you wanted to eventually sell your stocks, you can use the numbers on Form 3922 to calculate the gain or loss of the transaction.
What does it mean to exercise stock options?
Employee stock options are a type of equity compensation that allows you to buy a certain number of your company’s shares at a set price defined in the option grant.
In a nutshell, exercising stock options means you want to buy company stock at a price that is lower than its fair market value—assuming that your company is performing well. This can allow you to potentially accrue substantial financial gains if the price of the company stock continues to grow over time.
Holding on to the stocks and selling them when they’re worth more than the strike price (exercise price) is a good strategy if you think the stock price will continue to rise. But it’s important to remember that there’s always some risk involved.
If you are responsible for filing Form 3922, consider talking to an accountant or using tax preparation tools. On the other hand, if you’re not sure what to do with your stock options, you might want to speak with an investment advisor.
How do you read Form 3922?
If this is your first time seeing Form 3922, you might be a bit overwhelmed by the information presented on the document. Don’t worry — we’ll help you understand what each box on the form represents in this section.
- Box 1 – Date Option Granted. The date that the option to purchase the stock was officially granted to you by your employer.
- Box 2 – Date Option Exercised. The date that you purchased the company stock under the Employee Stock Purchase Plan.
- Box 3 – Fair Market Value on Grant Date. The fair market value per share of the company stock on the date the option to purchase the stock was granted to you.
- Box 4 – Fair Market Value on Exercise Date. The fair market value per share of the company stock on the date you decided to exercise your option to purchase.
- Box 5 – Exercise Price. The price paid per share on the Exercise Date.
- Box 6 – Number of Shares Transferred. The number of shares you purchased.
- Box 7 – Date Legal Title Transferred. The date that the legal title of the shares was first transferred to you. Note that the date of transfer will usually coincide with the exercise date.
- Box 8 – Exercise Price Using Grant Date FMV. If the exercise price per share wasn’t fixed or determinable on the grant date, Box 8 shows the exercise price per share determined as if the option was exercised on the grant date. However, this box will be blank if the exercise price per share was determinable on the grant date.
Is Form 1099-B the same as 3922?
No, these forms have one main difference between the two. Form 3922 is the form your employer sends you if you haven’t yet sold the stocks.
IRS Form 1099-B, however, is the form you’ll receive once you sell the stock units. Since the form records your capital gains and losses, you need to report it on your tax return.
How do I get Form 3922?
If you’ve exercised your stock options during the tax year, your employer will send you Form 3922 by January 31 following the year you purchased the stocks. Keep in mind that your employer is responsible for filing this form, and no action should be needed on your part.
Do I need to report this form?
No, you do not need to report Form 3922. It’s only for information purposes because no income is made by simply buying the stock options at a discounted price.
However, once you sell the company stock, you’ll need the information from the form to calculate your gains and losses. Be sure to keep it for your records. When it comes to taxes, how much you have to pay will depend on several factors, such as how soon you sell your shares after the offering date. Typically, the IRS will consider a portion of the profit (the “bargain element” of getting a cheaper price) as regular compensation and will be taxed as regular income on your Form 1040. Any additional profit will be taxed at a lower rate as long-term capital gain and is reported on Schedule D, Capital Gains and Losses.
- Your employer provides Form 3922 to report the transfer of stock acquired through the Employee Stock Purchase Plan.
- You don’t need to report Form 3922 with your tax return. The form is for informational purposes only, but the information can come in handy once you decide to sell the stocks.
- Form 1099-B is a document reporting the capital gains or losses incurred after selling assets through a brokerage or exchange.
- Unlike Form 3922, you’ll need to report the information on Form 1099-B to the IRS.
View Article Sources
- About Form 3922, Transfer of Stock Acquired Through An Employee Stock Purchase Plan Under Section 423(c) — IRS
- Stocks (Options, Splits, Traders) — IRS
- IRS Letters and Notices: What To Do If You Got One — SuperMoney
- What Is Tax Planning? A Guide For Beginners — SuperMoney
- How to Get Out of Tax Debt: Options and Solutions — SuperMoney
- Do I Have To Pay Taxes On My Checking Account? — SuperMoney
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