You Moved. The Vesting Didn’t Reset.
You took the job offer in California, relocated to Texas for the lower cost of living and the zero state income tax, and figured you were done with California’s tax return for good. A year later, a chunk of your RSUs vest. Six months after that, a letter shows up from the California Franchise Tax Board asking why you didn’t report income sourced to California, on a vest that happened well after you left.
This isn’t a mistake on their part. It’s how state income sourcing for equity compensation works, and almost nobody explains it before you pack the truck.
The Vest Date Isn’t the Sourcing Date
The state that gets to tax your RSU income isn’t determined by where you lived when the shares vested, and that trips a lot of people up. It’s determined by where you worked during the period the award was earned, from the grant date to the vest date.
Most tech companies grant RSUs on a multi-year schedule, four years being standard, sometimes with quarterly or monthly vesting inside that window. A single vest event covers value that, in the state’s view, was earned gradually across the entire period leading up to it, not on the specific day the shares landed in your brokerage account.
So if you worked in California for part of that vesting period and in Texas for the rest, California doesn’t hand you a clean break just because you weren’t a resident on vest day. It taxes the fraction of that vest attributable to the days you worked there.
The Allocation Formula
States that source equity income this way, and most that have an income tax do, use a workday allocation:
- Workdays in the state during the vesting period, divided by
- Total workdays in the vesting period
That fraction gets applied to the value of the vest (fair market value on the vest date, the same number that lands on your W-2) to determine how much income that state can claim.
The formula cares about days you actually worked while employed under that specific grant, from grant date to vest date. Vacations, unpaid leave, and days after the vest itself don’t count the same way, and different states have their own worksheets for handling holidays and time off. But the core ratio, workdays in-state over total workdays, is the concept nearly every state’s sourcing rule is built around.
Worked Example: 18 Months In, Then You Left
Say your grant vests over 48 months, standard four-year vesting. You worked the first 18 months of that period in a high-tax state (call it State A, and assume for illustration a 9.3% marginal state rate, roughly California’s top bracket in recent years) before relocating to a no-income-tax state (State B, modeled on Texas) for the remaining 30 months.
A tranche of 1,000 shares vests at $80/share: $80,000 in ordinary income for that vest event.
- Allocation to State A: 18 / 48 = 37.5% of the vest, or $30,000
- Allocation to State B: 30 / 48 = 62.5% of the vest, or $50,000
State B doesn’t tax wage income at all, so that $50,000 portion costs you nothing at the state level. But State A still gets to tax its $30,000 slice, even though you haven’t lived there in over two years and didn’t work there during the month you actually vested. At an illustrative 9.3% rate, that’s a $2,790 state tax bill on a vest that, on paper, looks like it happened entirely in a tax-free state.
Multiply that across every vest that straddles the move, which on a monthly or quarterly schedule could be most of them for the next two or three years, and the number stops being a rounding error.
Why Your Paycheck Withholding Gets This Wrong
None of this shows up correctly on your paycheck unless somebody tells payroll to make it show up.
Payroll withholding is generally driven by your current work location on file with HR, not by a rolling calculation of historical workdays across states. If you move and update your address with HR promptly, payroll usually starts withholding for your new state going forward. What it doesn’t automatically do is keep withholding for the old state on the portion of future vests that old state is still owed.
The practical result: you get over-withheld in your new state relative to what you’ll actually owe there, and under-withheld, often to zero, in the old state, because nobody flagged that the old state still has a claim on part of every vest for years after you left. Sell-to-cover withholding at vest typically uses a flat rate tied to your current work state, so if that state is Texas, the withholding on the old state’s share is $0, guaranteed. You find out the gap exists when you file, or when the old state’s tax agency finds out first.
If you didn’t update your work location with HR right away after the move, this can go the other way for a while too: for whatever stretch you were still on file as working from the old state, payroll may keep sourcing everything there, then correct it all at once later.
Filing as a Nonresident, and the Credit That Mostly Saves You
Once you’ve moved, you’re generally a nonresident of the state you left, but that doesn’t end your filing obligation to it. If a state sources income to you, you typically owe that state a nonresident tax return reporting the sourced amount, even though you live and file as a resident somewhere else entirely.
Your resident state, or your new state once you’ve established residency there, usually gives you a credit for taxes paid to another state on the same income, and that credit is what keeps this from becoming literal double taxation. But the credit only offsets, dollar for dollar, up to what your new state would have charged on that same income. If the old state’s rate is higher, you still pay the difference out of pocket. The credit prevents double taxation; it doesn’t prevent you paying more than you would have if you’d never left.
If you moved to a no-income-tax state like Texas or Florida, there’s no credit to claim at all, because there’s no state tax bill on the new side to offset against. You just pay the old state its share, in full, with nothing coming back.
States Differ, and a Few Are Aggressive About It
Every state with an income tax handles this differently. Some publish detailed guidance on equity compensation sourcing, complete with worksheets. Some barely address it and leave you inferring the rule from general wage-sourcing statutes. Rates, thresholds, and how hard a state audits multi-state equity income all vary by state and change over time, so treat any specific rate or rule here as an illustration, not a citation, and check the current rule for your specific states before filing.
A handful of states are known for pursuing this issue harder than most, particularly ones with high top brackets and a lot of departing tech workers. If you left a state with a reputation for chasing former residents, budget extra time, and possibly a CPA, for that state’s return specifically.
The Trailing Nexus Problem
The uncomfortable part: this doesn’t end the year you move. As long as any part of your vesting schedule overlaps with time you worked in the old state, that state keeps a claim on part of every vest until the last award granted before your move has fully vested out.
On a typical four-year vesting schedule, that means you can owe a state tax return there for three or four years after your moving truck pulled away, with the allocation fraction shrinking each year, but not hitting zero until the final tranche from your pre-move grants vests.
Your Defense: Paper Trail
The allocation math above only works if you can prove the workday split when someone asks. Build the record before you need it:
- Keep a workday log or calendar record showing which state you physically worked from on any day that matters, especially around the move date
- Keep your grant documents and vesting schedules for every award, since the sourcing period runs from each grant’s own date, not some blended average across your whole equity history
- Check the state wage boxes on your W-2 after any move. Multi-state W-2s often show state-by-state wage splits, and if those numbers don’t match your own workday calculation, that’s worth catching before you file, not after a notice arrives
- Save the HR confirmation of when your work location officially changed in the company’s system, since that date can differ from the day you actually moved
Same Logic, Different Paycheck
None of this is unique to RSUs. Cash bonuses earned across a performance period that spans a move get sourced the same way, by workdays during the period the bonus covers. Stock option exercises get similar treatment on the spread between strike price and fair market value, allocated across the period from grant to exercise (or grant to vest, for options that vest before exercise). If you’re planning a move with unvested equity or bonus periods hanging over you, the same math applies with the relevant period swapped in.
When to Just Pay Someone
If you’ve moved states with unvested equity outstanding, especially equity granted in a high-tax state, this is a case where a CPA who specifically handles multi-state equity compensation earns their fee. The interaction between grant-date sourcing rules, nonresident filing requirements, credit calculations, and each state’s own worksheet isn’t something you want to reconstruct from forum posts the week before the filing deadline.
Your unvested grants already know which states they owe. It’s worth knowing too, before the letter shows up instead.
