If you participate in your company’s Employee Stock Purchase Plan (ESPP), you may have received Form 3922 and thought, what actually is it? Do I need to do anything with it? This IRS form often arrives by January 31 and looks intimidating, but understanding it is important for accurate tax reporting and avoiding overpayment. If you are an individual taxpayer or a business owner managing ESPPs, understanding this form can save you time and potential headaches during tax season.
This guide will explain exactly 3922 IRS Form, why you receive it, and how to use it to ensure accurate tax reporting when you sell your stock, helping you avoid costly errors and potentially maximize your investment return.
What is IRS Form 3922?
IRS Form 3922, officially titled “Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c),” is an information return filed by corporations with the Internal Revenue Service (IRS). It is not a bill or a form you file with your annual tax return. Instead, it serves as an official record of a specific event: the first transfer of legal title of stock you acquired through your company’s ESPP. You will receive Form 3922 when you purchase shares through your ESPP and those shares are deposited into your brokerage account.
It is Important to note:
- Form 3922 is not a tax bill
- You do not file Form 3922 with your tax return
- Receiving Form 3922 does not create immediate tax liability
The Form 3922 helps you calculate your true cost basis, the original value of an asset for tax purposes, when you eventually sell your ESPP shares. Without this form, you risk overpaying capital gains taxes.
What Is the Purpose of IRS Form 3922?
The core purpose of Form 3922 is to provide you and the IRS with the essential data needed to determine your cost basis in the stock and to track its holding period. This information becomes vital only when you sell the shares.
- For Record-Keeping: You should treat this form as a permanent part of your investment records. It contains the official dates and prices that establish your tax position in the stock.
- For Future Tax Calculations: When you sell, your brokerage will issue a Form 1099-B reporting the sale proceeds. However, the cost basis reported on that form may be incomplete or incorrect for ESPP shares. You will use the data on your Form 3922 to determine the accurate cost basis to report on Schedule D and Form 8949 of your tax return, which is how you report capital gains and losses.
Crucially, receiving IRS Form 3922 does not mean you owe taxes at that moment. For standard ESPPs, no taxable income is recognized at the time of purchase. The tax event occurs later in the year you sell the shares.
Point to Consider: Accurately reporting your ESPP transactions using Form 3922 helps ensure correct tax calculations. To see how IRS reporting requirements extend to business compliance, check out our BOI Reporting Guide for Company Applicants and Beneficial Owners.
IRS Form 3922 vs. Form 3921: Key Differences
Employees often receive Form 3921 and Form 3922 and confuse their purposes. While both are informational returns for stock compensation, they apply to very different types of plans.
| Feature | Form 3921 | Form 3922 |
| Plan Type | Incentive Stock Options (ISOs) | Employee Stock Purchase Plans (ESPP) under section 423(c) |
| Triggering Event | When an employee exercises an ISO option to purchase stock | When the legal title of ESPP shares is first transferred to the employee (e.g., deposited into their account) |
| Primary Tax Focus | Help track eligibility for preferential long-term capital gains treatment which is used for Alternative Minimum Tax (AMT) calculations | Provides data to calculate cost basis and holding period for determining capital gains/losses upon sale |
| Immediate Tax Impact | Exercise of an ISO can trigger AMT implications in the year of exercise | Typically, no immediate income tax upon purchase/transfer |
| Filling Entity | Corporation granting options | Corporation transferring shares |
In short: Form 3921 is for stock options (ISOs), while Form 3922 is for purchase plans (ESPPs). Keeping them organized separately is essential for accurate tax reporting.
How to Use Form 3922 for Taxes and Calculating Cost Basis
The true value of Form 3922 is realized when you sell your ESPP shares. The form provides the numbers you need to report the sale correctly, which can be complex due to the “bargain element” (the discount you received).
Here is a breakdown of the key boxes on Form 3922 and how to use the data:
- Box 1 (Grant Date) and Box 3 (FMV at Grant) determine the start of your holding period, which is crucial for classifying a sale as a “qualifying disposition”.
- Box 2 (Date Option Exercised) & Box 4 (FMV on Exercise Date): The date you purchased the shares and their market value at that time.
- Box 5 (Exercise Price Paid Per Share): The actual price you paid per share (after any discount).
- Box 7 (Date Legal Title Transferred): This is the date that starts your actual holding period for capital gains purposes.
When using Form 3922 to track your ESPP stock, it’s helpful to also understand related IRS forms, such as Form 1099‑NEC, which reports other types of income. Keeping both forms in mind ensures your cost basis calculations and tax filings are accurate, reducing the risk of errors when you sell your shares.
The Critical Calculation: Determining Your Cost Basis
Your cost basis is not simply the price you paid (Box 5). For tax purposes, when you sell ESSP stock, you must often add any portion of the ESPP discount that is taxed as compensation income to your purchase price. This adjustment ensures your capital gain is calculated correctly and prevents double taxation.
The ESPP is generally calculated as the difference between the Fair Market Value on the purchase (exercise) date (Box 4) and your actual exercise price (Box 5). This added amount is reported as compensation income, which increases your basis, thereby reducing your taxable capital gain.
- Example: You buy a share for $85 (Box 5) when its FMV (fair market value) is $100 (Box 4). Your discount is $15. When you later sell the share for $120, your compensation income is $15. Your adjusted cost basis is $85 + $15 = $100. Your capital gain is $120 – $100 = $20.
This is a simplified example, and the rules differ for qualifying vs. disqualifying dispositions. For guidance on using Form 3922 and ESPP tax reporting, consult a Certified Public Accountant (CPA) or tax professional. At AcctRight PLLC, our experts can help you accurately calculate cost basis and ensure IRS compliance.
Who and When You Receive this Form
Who Receives It: The form is issued to any employee who acquires stock through a Section 423(c) ESPP, where the purchase price was less than 100% of the stock’s value at grant or was not fixed at grant. The corporation (or its transfer agent) that records the first transfer of legal title must file the form with the IRS and furnish a copy to you.
Important Deadlines:
- To You (Employee): Your employer must provide Copy B of Form 3922 to you by January 31st of the year following the stock transfer.
- To the IRS (Employer): Your employer must file Copy A with the IRS by February 28th (paper) or March 31st (electronic) of that same year.
Conclusion:
Form 3922 is more than just a notice; it’s a vital piece of the puzzle for the tax-efficient management of your ESPP benefits. By understanding what it is and diligently preserving it, you empower yourself to report investment sales accurately, avoid overpaying taxes, and fully benefit from your company’s stock plan. For individuals and executives navigating complex compensation, including ESPPs, ISOs, or other equity arrangements, professional guidance is key. The tax team at Acct. Right, PLLC specializes in translating these complex forms into optimal tax outcomes.
References
Frequently Asked Questions
What do I do with Form 3922 if I haven't sold my ESPP stock?
Keep Form 3922 with your tax and investment records. You need it later to calculate an accurate cost basis when you sell your ESPP shares.
How do I report Form 3922 on my tax return?
You don’t report Form 3922 itself on a tax return. Use its data to adjust the cost basis on Form 8949 and Schedule D when selling.
Can I get a substitute Form 3922 if I lost it?
Contact your employer or plan administrator. They can reissue Form 3922 or provide equivalent documentation showing acquisition dates and prices.
What’s the difference between a qualifying and disqualifying disposition?
A qualifying disposition meets ESPP holding-period rules for lower capital gain tax, while a disqualifying one doesn’t, and part becomes ordinary income.
How do I correct an error on Form 3922?
Contact your plan administrator or employer to request a correct form. The employer must refile with the IRS and give you the updated copy.
Disclaimer:
This article is for informational purposes only and does not constitute legal or financial advice. Please consult with a qualified tax advisor or professional, such as Acct. Right, PLLC, for guidance specific to your situation.
