If you earned equity while working in California and then moved away, California is not finished with you. The state taxes the portion of your RSUs and stock options that was earned during your California workdays, and that claim survives your move. Someone who vests a large block of RSUs a year after relocating to Texas can still owe California tax on part of it. The rule that drives this is workday sourcing, and understanding it before you leave can save a surprise assessment later.
How does California tax RSUs after you move out of state?
California taxes equity by looking at where you earned it, not where you live when it pays out. For restricted stock units, the income is earned over the period from grant to vesting, because that is the service period you had to complete. California claims the fraction of that income matching the workdays you spent in California during that period.
So if you were a California resident for part of the grant-to-vest window and a nonresident for the rest, California taxes only the California-workday fraction, but it taxes that fraction even though you were a nonresident on the day the shares actually vested. This is often called trailing nexus: the state's claim trails the income back to where the work happened.
How is the California portion of equity calculated?
California uses a workday allocation from FTB Publication 1004. You take your California workdays between grant and vesting, divide by your total workdays over the same period, and apply that percentage to the income you recognize at vesting.
Worked example: an RSU tranche that vests after you leave
CalculationA tranche of RSUs worth $100,000 vests on the day it settles. From grant to vest you logged 1,000 total workdays, of which 400 were in California before you moved.
- California workday ratio: 400 / 1,000 = 40 percent
- California-source income: 40 percent of $100,000 = $40,000
- California taxes the $40,000 on a nonresident return; the remaining $60,000 is not California-source.
You owe California tax on the $40,000 even though you were living in another state on the vesting date.
Keep the underlying records: grant dates, vesting dates, and a workday log showing where you were. In an audit the Franchise Tax Board will ask you to support the allocation, and a clean day count is what defends it.
How are stock options sourced differently from RSUs?
Stock options use a different earning window. For a nonqualified stock option (NQSO), California generally sources the income over the period from grant to exercise, applying the same workday-ratio method to the spread you recognize when you exercise. For incentive stock options (ISOs), California follows the federal alternative minimum tax treatment, so the AMT adjustment at exercise is sourced by the same workday logic.
The practical result is the same as with RSUs: the California-workday share of the option income stays California-source and taxable after you leave, and the non-California share is not. The only difference is which period you measure.
Will you be double-taxed by California and your new state?
You will file in two states, but you generally will not pay tax twice on the same dollars. Your new state of residence taxes your worldwide income, including the full equity amount, while California taxes only its sourced slice. To prevent double taxation, your new home state usually allows an other-state tax credit for the California tax paid on the overlapping income. California's own credit provisions under Revenue and Taxation Code Sections 18001 and 18002 can also apply, depending on which state you moved to.
If your new state has no income tax, such as Texas, Nevada, Washington, or Florida, there is no second layer to credit; you simply pay California on the California-source portion and nothing to your new state. Either way, you file a California nonresident return.
What about California withholding on equity?
California requires 10.23 percent state withholding on stock-based supplemental wages, meaning option exercises and RSU vesting. That flat rate is a blunt instrument: it can over-withhold if only a small share of your equity is California-source, or under-withhold if most of it is. You reconcile the difference when you file Form 540NR with Schedule CA(540NR), reporting the California-source portion and claiming credit for the California tax already withheld.
Log your workdays before, during, and after the move
The allocation lives or dies on your workday records. Keep a dated log of where you worked across every open grant-to-vest and grant-to-exercise window, along with grant agreements and vesting schedules. The cleaner your day count, the smaller and more defensible your California-source number, and the easier it is to survive an FTB review.
Before your next vest
- Pull every open grant and note the grant, vest, or exercise dates
- Build a workday log covering each earning period
- Expect 10.23 percent California withholding and reconcile it on Form 540NR
- Coordinate the credit in your new state so you are taxed once
Trailing equity tax is closely tied to whether California still considers you a resident at all. If you are planning the move itself, start with California residency rules and FTB audits, and see our California tax hub for the full picture.
Have questions about California tax on your RSUs or stock options after a move? Contact TS CPA for a free consultation. We respond within the same day.