How California Still Taxes Your RSUs After You Move
She sells the house in Palo Alto. She gives notice at the firm. She packs the moving truck pointed at Austin. By every measure that matters to her life, she is done with California.
And then, three months later, her first post-move RSUs vest. The broker sends the proceeds to her new Texas address. She files her Texas return. And then a letter from the Franchise Tax Board arrives, asking for a slice of those shares.
This is the surprise that blindsides roughly half the tech executives who relocate out of California. And it's not a glitch. It's the rule.
California's sourcing rule: how RSUs get taxed after you leave
California taxes all compensation for services performed within the state. When you lived there, that's simple: everything is California-source income. After you leave, the calculation gets more specific.
For RSUs, California uses a sourcing formula based on where the work was performed during the vesting period. The key number is the ratio of days you worked in California during that period to total working days.
Say you were granted RSUs that cliff-vest over four years. You worked the first two and a half years in San Francisco, then moved to Dallas. For the portion of those shares that vests after your move, California still claims a percentage equal to the days you worked in California during that vesting tranche's earning period.
In plain terms: if 60 percent of the vesting period was spent in California, the FTB expects tax on 60 percent of those shares, even if you are living in Texas when they vest.
The mechanics are the same whether you move to Texas, Florida, Nevada, or anywhere else. The state line changes your life. It does not automatically change your California tax obligation on equity that was earned here.
What the FTB looks for and when they find it
The FTB is good at finding former residents with California-source equity. Here is what they look at:
- Your California nonresident return (which you must file if any income is California-source), cross-checked against your historical filing pattern
- W-2s from your former employer that still show California income codes
- The gap between the date you left and the date your RSUs began vesting post-move
- Your claimed residency date versus your actual presence: flight records, credit card charges, children's school enrollment, medical appointments
If the gap looks suspicious, say you moved in December and claimed a full year of Texas residency, the FTB will take a closer look. California's statute of limitations for audit is generally four years, but for substantial understatement, it extends to six.
The question most executives do not ask until they get the letter: did I document the move well enough to prove the FTB's allocation is wrong?
A few common scenarios that trigger an inquiry:
- Filing a part-year resident return and claiming zero California days in a year the FTB can see you had California bank transactions, a California driver's license renewal, or property that took time to sell
- Continuing to work for the same California-based employer after your move: the employer's payroll system may keep flagging you as a California employee
- Moving mid-year without a clear residency cutoff date that you can back up with hard evidence
How the timing of your move changes the math
The month you leave California matters more than most executives realize. Here is why.
California's sourcing formula counts days worked in the state during the vesting period. Moving on June 30 versus January 31 does not just change your part-year resident return. It changes the ratio applied to every future vesting event for those pre-move grants.
A simplified example:
You receive a grant on January 1 that vests 25 percent each year for four years. You move to Florida on July 1 of year two.
For the shares that vest in year three, after the move, California calculates what portion of the year-two-to-year-three vesting period was worked in California. If you worked 12 months in California and then 6 months from Florida during that year-long period, about 67 percent of those vesting shares are California-source income.
Move on January 1 instead of July 1, and that ratio drops to 50 percent.
The timing matters for every single vesting event after your departure until the grant fully vests. A two-month difference in your move date can shift tens of thousands of dollars in California tax liability. (For a broader look at what a California-to-Texas move means for your overall tax picture, see our post on moving from San Diego to Frisco.)
Three things to do before you move
1. Get clear on which grants will still vest after you leave
Map every outstanding RSU grant. Note the grant date, the vesting schedule, and the percentage of time you expect to spend in California versus your new state for each vesting tranche. This gives you the baseline number before you decide anything. (If your RSUs have been stacking up for years, you may also want to read about building a multi-year diversification plan.)
2. Build your residency evidence file
The FTB uses a 12-factor test for residency. Before you move, start a file with:
- Your new lease or property purchase
- Utility transfers, voter registration, driver's license, vehicle registration: all in the new state
- Dates and records for the physical move: moving company receipts, flight itineraries
- Bank account and credit card address changes
- Children's school enrollment records in the new state
A clean paper trail is the difference between the FTB accepting your claimed residency date and spending eighteen months in correspondence.
3. Talk to a strategist before you announce the move
This is not a DIY calculation. The interaction between grant dates, vesting schedules, your employer's payroll system, and your new state's tax rules (Texas and Florida have no income tax, but other states do) is complex enough that a single missed detail can cost more than the strategy session would.
A tax strategist who works with equity compensation runs the scenario forward: what each future vesting event will look like, how much California will claim, what your new state will claim if anything, and whether there is room to restructure timing before you give notice.
The bottom line
California's reach on RSU income after you leave is not a loophole or a hidden tax. It is the normal application of a sourcing rule that most executives never hear about until the letter arrives. Knowing the number before you go is the difference between planning for it and being surprised by it.
If you are a senior tech executive considering a move out of California, or already gone and wondering what you owe, a focused conversation can clear it up in less than an hour.
Book a free 15-minute discovery call with our team. We will talk through your situation, and if it makes sense, a paid strategy session gives you a concrete plan with specific numbers for your equity and your move.
Phone: (619) 280-2700. Email: info@RoadmapTax.com.
FAQ
Does California tax RSUs after I move?
Yes. California taxes RSUs based on where the work was performed during the vesting period, not where you live when they vest. If you worked in California for part of the vesting period, California claims a proportional share of those shares.
How does the FTB find out I moved?
The FTB tracks changes in your filing patterns, W-2 income codes, and residency documentation. If you stop filing California returns but your former employer still reports California-source income on your W-2, the FTB will notice.
What if I move to Texas or Florida, states with no income tax?
Moving to a no-income-tax state removes the risk of double taxation but does not eliminate California's claim on the California-source portion of your RSUs. You still owe California its share based on the sourcing formula.
How long after I move can California audit me?
California generally has four years from the date you file your return to audit you. If the FTB determines you substantially understated your income, the window extends to six years. For fraud, there is no statute of limitations.
Can I avoid California tax by waiting until shares vest after I move?
No. The sourcing rule looks at where the work was performed during the vesting period, not where you are on vesting day. If you earned the grant while living in California, California will claim its share.
What documents prove my residency change to the FTB?
The FTB uses a 12-factor test. Key evidence includes: your new lease or deed, utility bills, driver's license and vehicle registration in the new state, voter registration, bank and credit card address changes, moving company receipts, and children's school enrollment records.
