A software engineer works at Google’s Mountain View office for three years, accumulates 60,000 RSUs, then transfers to Google’s Austin office. The RSUs continue vesting monthly after the transfer. When 10,000 shares vest in December at $180 per share, a $1,800,000 vesting event, California asserts tax on the portion attributable to the California working period. Three years of California service out of four total years of vesting produces 75% California attribution. California’s claim: 75% × $1,800,000 = $1,350,000 in California-source income, taxed at 13.3%. The California RSU tax on this single vest: approximately $179,550. Owed by a Texas resident. On shares whose vesting timing she does not control.
How Does California Tax RSU Income After an Employee Moves to Another State?
California sources RSU, ISO, NSO, and PSU income using a time-based apportionment formula derived from California’s income sourcing principles: the number of days worked in California during the vesting period divided by the total number of days in the vesting period. The result is the California-source percentage of the RSU income at each vest event. California taxes this percentage regardless of where the employee lives at vesting. Former California residents must file a California nonresident return, and in many cases FTB Form 3840, each year they receive California-source equity income after departure. This position is the dominant practitioner interpretation of California’s apportionment rules as applied to equity compensation; the FTB has not published explicit regulatory guidance specific to RSUs.
Who Has This Problem?
You worked at a California technology company for any portion of an RSU, ISO, NSO, or PSU vesting period and have since relocated to another state. This includes employees who formally transferred between offices, remote workers who worked physically in California during part of a vesting period even if informally, and former California residents planning a move who hold unvested equity.
The Apportionment Calculation: A Worked Example
Grant date: January 1, 2023. Vesting: 1,000 shares per month over four years. California employment through December 31, 2025. Texas employment beginning January 1, 2026. Total vesting period: 48 months. California working months: 36. California apportionment: 36/48 = 75%.
Monthly Vest in 2026 (As Texas Resident)
1,000 shares × $50 = $50,000
California-Source Income Per Vest
75% × $50,000 = $37,500
California Income Tax Per Vest
$37,500 × 13.3% = $4,988
Annual California Tax on RSU Vests in 2026 Alone
$4,988 × 12 = $59,850
Owed by a Texas resident. No California withholding. No employer FTB notice.
The FTB expects the taxpayer to identify and report this independently.
The obligation to identify and report California-source equity income rests with the taxpayer. California does not send a bill or a notice in advance. Former residents who fail to file the required nonresident return are responsible for the resulting tax, interest, and penalties regardless of whether their employer withheld or reported the income.
FTB Form 3840 and the Continuing Filing Obligation
Former California residents who receive California-source income after departure must file a California nonresident return for each year in which they receive such income. FTB Form 3840 is used to report deferred compensation from California sources, a category that includes stock option and RSU income attributable to services performed during California residency. Many former California residents overlook the tax implications of relocating from California and believe they have no California filing obligation after establishing residency in another state. If they hold unvested equity from California employment, that belief is likely incorrect. A California nonresident filing obligation may exist for each year such income is received. The obligation continues each year in which the taxpayer receives equity income attributable to California service periods.
How the FTB Discovers Unreported California-Source Income
California receives federal information returns and W-2 data from employers. Large RSU vesting events are reported on W-2s and in some cases on Form 1099. When the FTB’s matching systems identify a former California resident receiving compensation from a California employer without a corresponding California nonresident return, it generates a notice. The FTB also has access to federal tax return data for California-sourced income. Failure to file generates FTB notices, interest, and penalties even if the tax itself was ultimately owed.
Remote Work and the Informal Relocation Problem
For multi-state income allocation, the apportionment rules apply to actual workday location, not the address registered in your employer’s payroll system. An employee who worked remotely from California in 2021 and 2022, then relocated without notifying HR, has California-source income on RSUs vesting after the relocation, calculated based on actual California workdays. Employers source withholding based on the registered payroll address. If the payroll address is Nevada but the employee was working from California, the California tax on the California workdays is owed and not withheld. The FTB audits high-income departures disproportionately and examines physical presence through credit card records, cell phone records, and professional license registrations.
What to Do Before Relocating
Tax planning for RSUs starts here: calculate the California apportionment percentage on every unvested grant before the relocation date. This quantifies the post-departure California obligation and determines the filing requirement for each subsequent year.
Notify HR and payroll of the relocation and confirm that your payroll source location is updated to the new state. This affects future withholding, not the California obligation on prior California workdays, but the incremental new-state obligation.
Model whether accelerating vesting, if the equity plan permits, or negotiating a buyout of unvested equity before departure reduces the total California exposure. In some cases, taking a taxable event before departure produces a lower total California obligation than vesting post-departure under the apportionment formula.
What Capital Tax Does
Capital Tax calculates the California workday apportionment percentage for each client’s unvested grants, identifies the annual California nonresident filing and FTB Form 3840 obligations, and prepares the returns for each year in which California-source equity income is received. For clients planning California departure, we quantify the post-departure California tax burden before the move and identify pre-departure planning strategies that reduce the California-source income.
If You Have Moved or Are Planning to Move
If you hold unvested equity from a California employer and have relocated or are evaluating relocation, begin your Multi-State Equity Sourcing Assessment at capitaltax.com/california-exit-tax. Bring the grant dates, vesting schedules, and California employment dates for each unvested grant. The California obligation is fully calculable before the relocation. It should not be a surprise afterward.
Frequently Asked Questions
Does California tax RSUs after you move to another state?
California may tax the portion of RSU income attributable to services performed in California during the vesting period, even after you establish residency in another state. The California-source portion may remain taxable when the shares vest after your relocation.
How is California tax calculated on RSUs after moving?
California-source RSU income is generally determined using a workday apportionment calculation. The number of days worked in California during the vesting period is divided by the total number of days in that period. The resulting percentage is applied to the RSU income recognized at vesting.
Do I have to file a California tax return after moving out of state?
You may need to file a California nonresident tax return if you continue receiving California-source equity compensation after relocating. The filing obligation can continue for each year in which you receive income attributable to services performed in California.
What is FTB Form 3840, and why is it relevant to RSUs?
FTB Form 3840 is associated with reporting deferred compensation from California sources. It may be relevant to former California residents who receive equity compensation attributable to work performed in California during an earlier period.
Are RSUs taxed in California if I live in Texas?
Yes, California may tax the portion of RSU income attributable to California workdays during the vesting period, even if you currently live in Texas. The remaining income may be subject to the tax rules of your current state, depending on applicable state law.
Does working remotely affect California RSU tax sourcing?
Yes. The actual location where you performed your work can affect the California-source portion of your RSU income. Your employer’s registered payroll address does not necessarily establish where you physically performed the work.
How can I reduce California RSU tax exposure before relocating?
You can calculate the California apportionment percentage for each unvested grant before moving, review your vesting schedules, and evaluate available pre-departure planning strategies. The appropriate approach depends on your equity plan and individual tax circumstances.
Can California impose penalties if I fail to report RSU income after moving?
Former California residents who fail to report taxable California-source equity income may face additional tax, interest, and penalties. Filing obligations should be evaluated for each year in which California-source compensation is received.