If your company offers employee share plans to US tax residents, there are certain regulations you’ll need to comply with. This includes completing annual tax filings. For more information about the tax forms, please read on.

Form 1099-B

Required by US IRS (Internal Revenue Service), form 1099-B is used by brokerage firms to report proceeds from stock sales and/or barter exchanges made by a holder/participant during calendar 2023, both to the holder/participant and the IRS. Form 1099-B will show transactions like the sales of stocks, bonds or other property.

Those who are US tax residents can only receive 1099-B for tax filing purposes. In transactions related to an employee share plan, it will show sales of stocks.

In 2024, the deadline for your broker to send the 2023 Form 1099-B to you is 15 February 2024.

Form 3921

Form 3921 is a US IRS form that must be filed by a company when an employee has exercised an incentive stock option (ISO) to acquire the company’s stock in the last tax year.

An ISO is a corporate benefit, granted by the company, that gives an employee the right to buy shares of company stock at a discounted price with the added benefit of possible tax breaks on the profit. The profit on qualified ISOs is usually taxed at the capital gains rate, not at the higher rate for ordinary income.

Unless the U.S. employee disposes of such shares in the year of the exercise, the spread between the exercise price and the fair market value on the date of exercise must be included in the calculation of such employee’s alternative minimum taxable income as part of the preparation of their U.S. income tax return.

ISOs must be held for more than one year from the date of exercise and two years from the time of the grant to qualify for a more favorable tax treatment. Also, employees cannot receive more than $100K worth of exercisable incentive ISO in a calendar year. Any additional ISOs over the $100K threshold are treated as non-qualified stock options (NSO) in the eyes of the IRS.

In 2024, the exercising employee must be given IRS Form 3921 (employee Copy B) by 31 January 2024. In addition to notifying employees, the corporation must file Forms 3921 with the IRS. The deadline for filing the Forms is 29 February 2024, or 1 April 2024 if filed electronically. Electronic filing is required if 10 or more Forms must be filed.

This material is for general information purposes only and cannot be relied upon as professional advice in an individual case.

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