Annual reporting of ISO/ESPP transactions
As originally discussed in our December 16, 2010 blog article, in 2009 the IRS issued final regulations pursuant to Section 6039 of the Internal Revenue Code (the “Code”) requiring employers to provide compensation to any employee who exercises incentive stock options (“ISOs”) has to pay an annual fee. ) or sold or otherwise transferred shares acquired under an employee stock purchase plan (“ESPP”) during a year, with a detailed information statement by January 31 of the following year. In addition, employers generally must file an information return with the IRS by February 28 of the following year, or March 31 for employers who file electronically. These due dates will be moved to the next business day if they otherwise fall on a weekend.
Information Statements to Employees for ISO/ESPP Transactions in 2024
If an employee exercised an ISO (i.e., a stock option described in Section 422 of the Code) in 2024, the employer must provide the employee with a written information statement by January 31, 2025. Form 3921 should be used for this purpose (click For more information, see these two IRS links (Form 3921 about Form 3921). However, an appropriate substitute form can also be used as long as it contains the required information. On one form Only one transaction can be reported on a 3921. In other words, an employee receives more than one Form 3921 from their employer for a calendar year if the employee performed more than one ISO exercise in that year has.
If in 2024, legal ownership of shares acquired under an ESPP (i.e., a plan described in Section 423 of the Code) was transferred from the employee to a third party and such transfer occurred First To transfer such shares, the employer must provide the employee with a written information statement by January 31, 2025. Form 3922 or an equivalent replacement form may be used (click on these two IRS links for more information on Form 3922 and Form 3922). Only one transaction can be reported on a Form 3922. In other words, an employee may receive more than one Form 3922 from their employer for a calendar year.
Information Report to the IRS
Additionally, employers must file an information return with the IRS by February 28, 2025 (or March 31, 2025 for employers who file electronically). The information returns must be filed on Form 3921 for ISO transactions and on Form 3922 for ESPP transfers. In other words, unlike employee information returns, no substitute form can be used for information returns filed with the IRS.
Related information
Please note that Forms 3921/3922 filed with the IRS must be scannable. Employers can order official IRS forms from the IRS, either by phone at 1-800-TAX-FORM (1-800-829-3676) or online, and the IRS will mail employers the scanned forms and other products. Employers submitting paper copies must also attach IRS Form 1096. Employers filing electronically must have a sender control code (see here for the application process). Additionally, employers with ten or more must file information returns electronically.
Failure to file the information returns on a timely basis or to file the information returns on a timely basis may result in penalties for the employer, including monetary penalties for each deficient return or statement.
Please note that the sale of shares acquired under an ISO or ESPP may result in additional reporting requirements, such as: B. Including the employee's income from the sale of stock on Form W-2.
Employers should review their management of all ISO and ESPP transactions in 2024 to ensure their ability to prepare and submit required reports in a timely manner.
IRS Release of New Election Form 15620 under Section 83(b).
As a reminder, in late 2024, the IRS issued a new Section 83(b) Election Form 15620. As noted on Form 15620, when substantially untransferred property is transferred in connection with the performance of services, the person providing the services may currently elect the excess (if any) of fair market value under IRC Section 83(b). of the property at the time of transfer in excess of the amount paid (if any) to be included in its gross income on the property at the time of transfer and not only when the property subsequently becomes substantially vested. An election under Section 83(b) must be filed no later than 30 days after the date of transfer of ownership. In accordance with IRC Section 7503, if the thirtieth day after the transfer of ownership falls on a Saturday, Sunday or legal holiday, the election will be deemed timely filed if it is postmarked by the next following day that is not a Saturday, Sunday or legal holiday. Form 15620 can be downloaded and completed in PDF format. Use of Form 15620 is not mandatory and taxpayers may continue to use another election form that complies with Section 83(b) if necessary.