Moving to Florida With RSUs: When California Still Taxes Your Equity After You Leave
She has been a VP of Engineering at the same public tech company for nine years. Her RSUs have stacked into about $2.8 million of one stock. She is tired of the California cost of living, the traffic, and the tax bill. She sells the house in Palo Alto, packs the moving truck pointed at Miami, and tells herself she is done with California income taxes.
And then, three months after she settles into Florida, she gets a letter from the Franchise Tax Board.
The letter says she owes California tax on RSUs that vested after she moved. She thought Florida's zero income tax meant zero tax. It is not that simple. Here is the rule: California taxes RSU income based on where the services that earned the RSUs were performed, not where you live when they vest. Understanding how this sourcing rule works is the difference between a clean break and a surprise bill.
The Florida Promise
Florida has no state income tax. For a tech executive earning $600,000 a year with $400,000 of that coming from RSUs, the difference can be significant. California would take up to 13.3% of that income. Florida takes nothing.
That is the draw. It is real. But the mistake most executives make is assuming the tax savings start the day they cross the state line. California has rules about who it taxes and on what income. And those rules do not stop applying just because you moved.
How California Sources RSU Income
California uses a sourcing rule for RSU income that most executives do not know about. The rule says RSU income is sourced to the state where the services that earned the RSUs were performed. Not where you live when you sell, and not just where you live when they vest.
Here is how it works in a representative situation. When RSUs vest, the value is treated as compensation for the work you did during the service period, which is usually the time between the grant date and the vest date. If you performed some of that work in California, California claims a share of that RSU income, even if you now live in Florida.
The share is calculated by looking at the number of days you worked in California during the service period versus the total days in that period. If you spent 60% of the service period working in California, California taxes 60% of the RSU value at vest, regardless of where you live when the vest happens.
This means a significant portion of your RSU income can still be taxed by California for years after you leave, especially if you have unvested grants that were awarded while you were a California resident.
The Residency Timing Trap
There is another layer to this. When you move mid-year, California treats you as a part-year resident. You file a California part-year resident return for the portion of the year you lived there. Florida has no state income tax, so you file nothing for Florida.
But here is where it gets tricky. California does not just look at where you live on vesting day. It looks at the entire service period for each grant. So a grant that was awarded three years ago, with a service period spanning your move, gets divided. The portion attributable to California days is taxed by California. The portion attributable to Florida days is not.
This creates a planning opportunity. If you can time your move so that large vesting events fall after your residency change, and if the service period for those RSUs has a higher proportion of Florida days, less of that income is sourced to California.
But the timing has to be right. And the move has to be real. California has strict rules about what counts as a change of residency.
What the FTB Looks For
The California Franchise Tax Board is aggressive about residency audits. They know that many executives claim to have moved but still maintain significant ties to California. When the FTB audits a residency change, they look for a clear break.
Having a Florida driver's license, registering to vote in Florida, and changing your primary address with your employer are strong evidence. Keeping a California home, maintaining a California driver's license, or spending more than six months a year in California weaken your case. The FTB also looks at where your family lives, where your children go to school, where you have your professional licenses, where you bank, and where you get your medical care.
A clean move requires a clean break. Half measures invite an audit.
A Representative Walkthrough
Let us walk through a representative situation.
A VP of Engineering, nine years at the same company, has accumulated $2.8 million in one stock through grants and vests. Her compensation is $680,000 a year. She decides to move from San Diego to Miami.
If she moves on January 1 and all her RSUs vest after that date, here is how the sourcing works. For each RSU that vests after the move, California looks at the service period for that grant. If the grant was awarded three years before the move, about one-third of the service period was in California and two-thirds in Florida. California taxes roughly one-third of the RSU value at vest.
The result is a gradual phase-out of California tax on her RSUs over the life of each grant. The longer she is in Florida, the smaller the California share becomes, until eventually the grants awarded entirely after the move have no California service days at all.
But she still owes California tax on the RSUs that vested before the move, and on the California-sourced portion of RSUs that vest after.
The key is to plan this before the move, not after. Understanding which grants will vest after the move, what their service periods are, and how the day-count math works allows for a much cleaner transition.
Is Florida Right for You?
Florida's lack of state income tax is a real advantage for RSU-heavy executives. But it is not the only consideration.
Florida has higher property insurance costs, especially in coastal areas. The cost of living in parts of Florida has risen significantly as more people have moved there. And if you plan to leave California permanently, you need to be honest with yourself about whether you are actually leaving or just spending more time in Florida.
The question to ask yourself is not just whether Florida saves you on state income tax. It is whether a move fits your life, your family, and your long-term plan. The tax savings are real, but they work best when they are part of a move you actually want to make.
FAQ
How long do I have to live in Florida before California stops taxing my RSUs?
California taxes RSUs based on where the services were performed, not just where you live when they vest. RSUs from grants awarded before your move will still have a California-sourced portion until the service period for each grant ends. Grants awarded entirely after you establish Florida residency are usually not taxed by California.
Do I need to file a California tax return after moving to Florida?
Yes, for the year you move, you file a California part-year resident return. You may also need to file California returns in future years if you have California-source income, such as RSU income sourced to your California service days or income from California rental properties.
What triggers a California residency audit?
Keeping a California home, maintaining a California driver's license, spending more than six months a year in California, having family in California, or failing to change your voter registration and banking relationships can all trigger an audit. The FTB looks for a complete break.
Can the FTB audit me years after I move?
Yes. California has a statute of limitations of four years for most audits, but it can be longer in cases of suspected underreporting. The FTB can also audit residency for any year where you filed as a part-year resident.
Does Florida have any state tax on investment income or capital gains?
No. Florida has no state income tax on wages, investment income, capital gains, or retirement income. However, Florida does have a 5.5% corporate income tax that applies to businesses structured as C-corporations.
Should I sell my RSUs before or after moving to Florida?
There is no simple answer. The tax treatment depends on when the RSUs vested (not when you sell), your residency at the time of each vest, and your future plans. A strategy session before the move can model the outcomes for your specific situation.
Ready to Plan Your Move?
If you are a tech executive considering a move to Florida and want to understand how California's sourcing rules apply to your RSUs, a free 15-minute discovery call is a good first step. We can talk through your situation and determine whether a full strategy session makes sense for you. Call (619) 280-2700 or email info@RoadmapTax.com.
