How California Taxes Your RSUs After You Move Out of State

A senior engineer at a Bay Area tech company moves to Austin in March, takes a remote-first role with the same employer, and assumes that's the end of California taxes on his RSUs. His December vest comes through, the W-2 reports an extra $400,000, and the following April his preparer tells him California still wants its share. He isn't the first person to learn that California RSU tax after moving out of state can follow you for years, sometimes well beyond the move itself.

California sources income to the workdays where it was earned, not the calendar days when it pays out. For RSUs, the rule sits in California FTB Publication 1004 and the underlying regulations under California Code of Regulations Title 18, §17951-5. The portion of the vest tied to workdays in California from grant date to vest date is California-source wages, and California taxes that portion regardless of where you live when the shares finally settle.

The mechanic is a fraction. California workdays from grant to vest, divided by total workdays from grant to vest. That ratio times the vest-day fair market value gives the California-source piece of each tranche. A grant that vests 48 months after issuance, with 18 months of California service before relocation, lands at 37.5% California-source. Move six months before vest after four years of in-state work and 87.5% is California-source. The closer the move date is to the vest date, the more the trailing tax bites.

The fraction is recomputed for every tranche. A four-year graded vest with quarterly vests is sixteen separate sourcing calculations, each one looking back to the original grant date and forward to its own vest date. Earlier tranches carry a higher California ratio because more of their grant-to-vest window sits inside the in-state period. Later tranches dilute as the out-of-state stretch grows.

Nonqualified stock options use the same workday allocation, except the relevant period runs from grant to exercise rather than grant to vest. Incentive stock options use grant to exercise as well, with the additional wrinkle that California has its own 7% AMT under R&TC §17062 that picks up the bargain element for residents. For a former resident who exercised ISOs while in California and sells the shares after the move, a disqualifying disposition reported on a later return is still sourced by reference to the original grant-to-exercise window. The move doesn't reset the clock.

The reporting goes on Form 540NR and Schedule CA (540NR). California computes a hypothetical tax on your full income as if you were a full-year resident, then multiplies that figure by the ratio of California-source AGI to total AGI. The marginal rate is therefore the resident rate. Only the base shrinks. For tax year 2025, that means California-source equity income above the $1 million Mental Health Services Tax threshold under R&TC §17043 is taxed at 13.3%. Federal liability doesn't change at all. New-state withholding usually does not pick up the California share, so a balance due in April is normal.

New York sources equity compensation by workdays under 20 NYCRR §132.18 and layers the convenience-of-the-employer rule on top for ongoing wages, which can pull a remote employee back into the New York base even when they're working entirely from home in another state. Massachusetts, Oregon, and Minnesota each source by workdays as well. Massachusetts also adds a 4% surtax on income above $1,083,150 for tax year 2025 under Article XLIV of the Massachusetts Constitution, and that surtax applies to Massachusetts-source equity income, not just to residents. The resident state usually credits tax paid to the source state, but the math depends on the order of operations and which state you call home in the year of the vest.

First, the vest schedule. Cliff vesting back-loads income into a single date that often falls after the move, but the workday allocation still captures the in-state period. Graded vesting spreads the exposure across many tranches, each with its own fraction. Second, the timing of the relocation relative to a major vest. Moving the week before a $2 million tranche can shift seven figures of basis to a no-tax state. Moving the week after cannot. Third, the residency change itself has to hold up. California's Franchise Tax Board audits domicile aggressively, and a move that doesn't include a real change in driver's license, voter registration, primary residence, vehicles, doctors, and where the family actually sleeps can be unwound years later. When that happens, everything goes back to California-source by default.

If the equity in question is C corporation stock rather than RSUs, the federal picture changes entirely. Section 1202 QSBS after the OBBBA changes can take the federal tax on a sale to zero, and the state-sourcing analysis becomes a secondary concern.