What Is Form 3922 and How Does It Affect Your Taxes?

Form 3922 is an informational document your employer sends after you buy shares through a qualifying Employee Stock Purchase Plan (ESPP) under Section 423 of the Internal Revenue Code. Receiving it does not mean you owe tax. No income is recognized when you exercise the option and buy the stock.¹ The form exists to record the dates, prices, and share counts you will need later, in the year you sell those shares.

You do not attach Form 3922 to your tax return. File it with your tax records and hold onto it.

Why Your Employer Sent It

Under Section 6039 of the Internal Revenue Code, your employer must file Form 3922 when it (or its transfer agent) records the first transfer of legal title of stock you acquired through an ESPP option, provided the exercise price you paid was less than the stock’s fair market value on the grant date, or the price was not fixed or determinable on that date.² Because most Section 423 plans offer a discount (often 15%), nearly every ESPP purchase triggers the form.³

The form is generated when the shares hit your name, not when you sell them. Your employer must furnish your copy by January 31 of the year after the transfer.⁴

A quick boundary: if what arrived is labeled Form 3921, that is a different form covering incentive stock options (ISOs) under Section 422. The tax rules differ.²

What Each Box Means

Form 3922 has seven numbered boxes. Each one feeds into the calculation you will run when you sell.

Box 1 — Grant date: the day the option was granted to you (start of the offering period).
Box 2 — Exercise date: the day you actually purchased the shares.
Box 3 — Fair market value per share on the grant date.
Box 4 — Fair market value per share on the exercise date.
Box 5 — Exercise price per share (the discounted amount you paid).
Box 6 — Number of shares transferred.
Box 7 — Date of the first transfer of legal title into your name.

When the form arrives, compare these figures to your brokerage records. If anything looks off, contact your employer’s stock plan administrator before you file.³

What You Do With It This Year

For the year you received Form 3922 without selling any of the shares, you do nothing on your tax return. Federal law provides that no income results at the time of transfer when you exercise an option under a qualifying ESPP.¹ The form itself instructs you to keep it and use it to figure any gain or loss in the year you dispose of the stock.³

Store the form with your permanent tax records. You will need those seven boxes potentially years from now. Keep it for as long as you hold the shares and for at least three years after you file the return reporting the sale.

How Form 3922 Affects Your Taxes When You Sell

The numbers on Form 3922 drive two calculations at sale: how much of your profit is treated as ordinary wages, and how much is treated as capital gain. Which set of rules applies depends on how long you held the shares.

Qualifying vs. Disqualifying Dispositions

A sale is a qualifying disposition only if you meet both of these holding periods:

At least two years after the grant date shown in Box 1, and
At least one year after the shares were transferred to you (Box 7).

Both conditions must be satisfied.⁵ Miss either one and the sale is a disqualifying disposition. The tax math is different in each case.

Qualifying Disposition

The ordinary income you report is the lesser of:

Your actual profit (sale price minus what you paid per share), or
The built-in discount at grant (Box 3 minus Box 5).

Your employer includes that ordinary income amount in your W-2 wages for the year of sale.⁵ Anything you made above that ordinary income portion is a long-term capital gain, reported on Form 8949 and carried to Schedule D.⁶ Your adjusted cost basis for that capital gain calculation is what you paid plus the ordinary income already recognized.

The “lesser of” rule can help you if the stock fell after purchase: when your actual gain is smaller than the original discount, only the smaller number is treated as ordinary income.

Disqualifying Disposition

Sell before meeting both holding periods and the ordinary income figure is usually larger. It equals the full spread on the purchase date: Box 4 minus Box 5, regardless of what the stock is worth when you sell.¹

Any additional gain above that spread is a capital gain. If you held the shares more than a year after purchase, it qualifies for long-term rates; otherwise it is short-term. Report the gain or loss on Form 8949 and Schedule D, using an adjusted cost basis equal to what you paid plus the ordinary income you recognized.⁶

Selling at a Loss

If you sell for less than your adjusted cost basis, you may have a capital loss. In a disqualifying disposition sold at a loss, you still recognize the full purchase-date discount as ordinary income, and the resulting capital loss can offset other capital gains. Excess losses can offset up to $3,000 of ordinary income ($1,500 if married filing separately), with any remainder carried forward.⁷

In a qualifying disposition sold at or below your purchase price, the “lesser of” rule can hold your ordinary income to zero, and a sale below your purchase price can produce a long-term capital loss.

If Your Form 3922 Is Wrong or Missing

If the dates or dollar amounts do not match your brokerage records, contact your employer’s stock plan administrator or human resources. The employer is responsible for the form’s accuracy and can issue a corrected version. Do not adjust the numbers yourself when you file; wait for the corrected form.

If shares were transferred to you but no Form 3922 arrived by early February, ask your employer for it. You are still on the hook for reporting the gain when you sell, whether or not the form was ever issued, and your brokerage statements and purchase confirmations serve as backup records in the meantime.

1
Office of the Law Revision Counsel. 26 USC 421 – General Rules
2
Office of the Law Revision Counsel. 26 USC 6039 – Returns Required in Connection With Certain Options
3
Internal Revenue Service. Form 3922 (Rev. April 2025) – Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c)
4
Internal Revenue Service. About Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c)
5
Office of the Law Revision Counsel. 26 USC 423 – Employee Stock Purchase Plans
6
Internal Revenue Service. Instructions for Form 8949 (2025)
7
Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses