Income sourcing for stock pay

Equity pay usually counts as wages, so states source it to where you did the job. If you live in a state on the day the income is taxed, it taxes all of it. A state you have left, or only worked in, taxes the share you earned there. New York’s rule taxes the same share of the income as your share of workdays in the state over a set period. California’s Franchise Tax Board uses the same method, which it calls one reasonable way to split the income.

Each state sets its own period. The Franchise Tax Board counts from grant to vesting for RSUs, and from grant to exercise for nonqualified stock options. If your job ends before the vest or exercise, the count stops at your last day. New York counts options from grant to vesting, and restricted stock from receipt to vesting. So one option can give each state a different share, and one state’s credit may not cover all of the other’s tax. New York’s rule does not name RSUs, so how it splits them is less settled.

Moving to a state that does not tax wages, such as Texas or Washington, does not end California’s claim on its share. If 300 of your 490 workdays from grant to vest were in California, it taxes about 61% of the vest. Each later vest or exercise can mean another nonresident return there. Growth after the shares are yours is investment income, taxed where you live when you sell. California also treats the whole gain on a qualifying ISO sale made after you leave as investment income, so it taxes none of it.