February 1, 2021 Deadline For Notices to Employees Who Purchased Stock in 2020 Through Stock Options or Employee Stock Purchase Plans

Employee Benefits & Executive Compensation

This is a reminder for corporations that issue stock options of deadlines for various tax notices and Internal Revenue Service (“IRS”) filings that are due beginning February 1, 2021.

INCENTIVE STOCK OPTION NOTICES AND IRS INFORMATION RETURNS – A corporation must notify employees and former employees who exercised an incentive stock option (“ISO”) in 2020 of certain details of the exercise, including the exercise price per share, the fair market value of the shares at the time of exercise, and the number of shares transferred pursuant to the exercise of the ISO.  The notice must be given using IRS Form 3921 (employee Copy B) by February 1, 2021.  Although an optionee does not have income for purposes of regular income tax on exercise of an ISO, the spread between the fair market value and the exercise price of the stock is an item of income for computing the optionee’s alternative minimum taxable income.  The information is needed by the optionee to determine whether any additional alternative minimum tax is due on his or her 2020 income tax return.

A separate notice is required for each transfer of stock following an exercise.  For example, if an employee exercised ISOs on two different dates in 2020, two Forms 3921 would be required.

In addition to notifying employees, the corporation must file the Forms 3921 with the IRS.  The deadline for filing the Forms is March 1, 2021, or March 31, 2021, if filed electronically.  Electronic filing is required if 250 or more Forms must be filed.  Filing with the IRS requires the use of the appropriate transmittal form.

EMPLOYEE STOCK PURCHASE PLAN NOTICES – A similar type of notice must be given to employees who purchased stock at a discount in 2020 from certain employee stock purchase plans (“ESPPs”) that are qualified under Section 423 of the Internal Revenue Code (“Code”).  If applicable, this notice is also due February 1, 2021, and is given with IRS Form 3922 (employee Copy B), with copies to the IRS by March 1, 2021, or March 31, 2021, if filed electronically.  Electronic filing with the IRS is required if 250 or more Forms must be filed.  Filing with the IRS requires the use of the appropriate transmittal form.  If the ESPP is not qualified under Code Section 423, income equal to the spread between the fair market value and the exercise price of the stock is reported in the same manner as for nonstatutory stock options (described below).

PENALTIES – The corporation could be liable for a penalty, of up to $280 per notice, for failure to file the required notice with the IRS by the due date, failure to include all required information on the notice, or failure to include correct information on the notice for ISOs or ESPPs.  There is also a separate penalty for the corporation of up to $280 per notice for each failure to furnish the complete and correct required notice to employees who exercised an ISO or purchased stock at a discount from an ESPP in 2020. The amount of the penalties depends on the length of time that the notices were late.  The penalties may be waived by the IRS if the filer provides reasonable cause for the late filing.

FORMS – Forms can be ordered by calling 1-800-TAX-FORM (1-800-829-3676) or by going to the IRS website ( at the link titled “Online Ordering for Information Returns and Employer Returns”.  These forms must be ordered because the information returns are scanned by the IRS, which does not accept copies of forms downloaded from the internet.

NONSTATUTORY STOCK OPTION REPORTING – Exercise of a nonstatutory stock option in 2020 usually results in income that must be reported on IRS Form W-2 for an employee or on IRS Form 1099-NEC for a nonemployee (such as a consultant or director).  The due date for providing the Form W-2 to the employee and filing the Form W-2 with Social Security Administration is February 1, 2021.  The issuer may owe a penalty for each Form W-2 of Form 1099-NEC that is filed late.  For employees, the amount of income (generally the spread between the fair market value and the exercise price) must be included in Boxes 1, 3 (up to the Social Security wage base), and 5 of the Form W-2, and also included separately in Box 12 and designated with a Code “V”.

For nonemployees, the spread is included in the “Nonemployee compensation” Box 1 of Form 1099-NEC if total compensation from the company for the individual is $600 or more. The Form 1099-NEC must be provided to the nonemployee and filed with the IRS by February 1, 2021.

If you have any questions, feel free to call (919-781-4000) or e-mail your Wyrick Robbins contact or Dan Palmieri ( or San Parikh ( of our Employee Benefits & Executive Compensation group.

NOTICE:  This Alert provides merely an overview and summary information regarding the requirements for these notices and filings, and is not written tax advice directed at the particular facts and circumstances of any person or company.  Please note that not all potential details and nuances regarding these deadlines have been addressed, and this Alert does not involve analysis of specific facts concerning any specific company or reach any conclusion regarding tax issues for any specific taxpayer. If you are interested in the subject of this Alert, we encourage you to contact us or an independent tax advisor to discuss the potential application to your situation.