When it comes to restricted stock units (RSUs), most professionals understand the basics: you’re taxed when the shares vest, and you owe ordinary income tax on the value of the shares at that time. But what most people don’t realize - including CPAs and wealth managers - is that RSUs follow state sourcing rules based on where you performed the work, not where you live when the shares vest.
This means you could owe thousands in state income tax to California, New York, or another high-tax jurisdiction years after you’ve moved to a no-income-tax state like Texas or Florida.
In this article, we’ll explain how RSU state sourcing works, why it matters, and walk through multiple real-world examples that demonstrate the risks and planning opportunities for high-income professionals with equity compensation.
Restricted Stock Units (RSUs) are a form of compensation issued by your employer. Unlike stock options, RSUs do not require you to purchase shares. Instead, you receive the shares outright once they vest, and at that point, the value of the shares is treated as ordinary income for tax purposes.
Here’s the standard federal tax treatment:
Your employer typically withholds federal taxes at the IRS statutory rate of 22% (and usually Social Security and Medicare) at the time of vesting. However, what is rarely explained is how states treat that income.
Unlike federal tax, which applies uniformly nationwide, state income tax is a patchwork, and when it comes to RSUs, many states follow a work-source allocation approach.
States tax RSU income based on where the work was performed to earn the RSUs, not just where you live when they vest.
This means if you worked in California for the first two years after receiving an RSU grant, then moved to Texas for the final two years, California could claim 50% of the taxable income when the shares vest, even if you’ve lived in Texas for years.
And they have the legal backing (and audit resources) to do it.
Let’s say Sarah is a senior product manager at a private tech company.
Although Sarah moved to Texas years ago, California's Franchise Tax Board (FTB) can assess income tax on the portion of the RSUs earned while she worked in California.
If the shares are worth $100 each at vesting:
Meet Daniel, a senior engineer working for a company headquartered in New York City.
New York examines the services performed between the grant date and the vesting date.
Even if Daniel is in Florida when the RSUs vest, the RSUs were earned over a multi-year period, much of which included work done in New York.
Result: New York can still claim tax on some portion of each RSU vesting based on grant-to-vest workdays.
New York applies the "convenience of the employer" rule, which states:
If your employer is located in New York and you work remotely in another state for your own convenience, rather than at the employer's request, then your remote work is considered New York-source income.
So even after moving to Florida, unless Daniel’s company requires him to work remotely as a condition of employment, New York considers all of his compensation - including RSUs - to be NY-source income.
Even though Daniel moved to Florida in 2022, New York taxes 100% of his RSU income as if he never left.
These states do not tax RSU income at the state level, regardless of sourcing:
Track Work Locations and Dates
Maintain a clear timeline of:
This data is your best defense in case of an audit or apportionment dispute.
Request a State-by-State Breakdown from HR or Payroll
Ask your employer:
“How are you sourcing my RSU income for state tax purposes?”
If they aren’t correctly apportioning it, you may need to adjust it on your tax return and defend it manually.
Claim State Tax Credits
If you are taxed by multiple states, use credits for taxes paid to other states to avoid double taxation.
Time Major Moves Carefully
If you're considering relocating from a high-tax state to a low- or no-tax state, coordinate your move before major grants or vesting periods begin. Moving after grants are already in place usually doesn’t eliminate sourcing exposure.
Formalize Remote Work Requirements
If you’ve moved out of New York or another “convenience rule” state, work with your employer to establish a formal, documented remote work requirement to minimize tax exposure.
Failing to properly source RSU income can lead to:
For high-income professionals, this can result in tens of thousands of unexpected tax liabilities, even years after leaving the job or relocating across the country.
If you’re a tech employee, executive, or startup founder with RSUs or stock compensation, where you work matters - and where you used to work might matter even more.
State tax sourcing is a hidden layer of complexity that can have massive implications for your after-tax wealth. And because RSUs often vest over multiple years across multiple states, it’s easy to overlook the tax exposure that's accumulating behind the scenes.
By tracking your timeline, asking the right questions, and working with an experienced tax advisor who understands equity compensation and state sourcing rules, you can proactively minimize risk and make sure your hard-earned equity rewards you, not the revenue departments of your former home states.
At VIP Wealth Advisors, we specialize in helping high-income professionals and equity-rich tech employees build, protect, and optimize their wealth, including understanding the nuances of RSU taxation across multiple states. If you’ve moved, received grants, or are planning a big exit, we can help you get it right.
📅 Book a free consultation today and let’s take the guesswork out of your equity strategy.