Leaving California does not wipe the tax on restricted stock you earned while you worked here. California RSU tax sourcing looks at where you performed the services between the grant date and the vest date. If you were a resident for that whole stretch, the full vest is California income. If you moved, only the California working-day fraction is California-source.
Ask Clear Peak to review your move and vest
That fraction is the whole question this article answers. The federal rule that a vest is wage income, and a later sale is a separate gain or loss, stays the same. What changes is how much of the vest California can still tax after you leave. A resident return and a part-year or nonresident return do not use the same slice.
The vesting-versus-sale tax treatment of RSUs is a different question. Use that article for basis and the sale. Use this one when the grant-to-vest period crosses a state line.
What California RSU tax sourcing measures
California taxes residents on income from every source. It taxes nonresidents only on California-source income. Restricted stock units are pay for services, so the source follows where those services were performed.
The Franchise Tax Board’s long-standing method is a working-day ratio. Chief Counsel Ruling 2013-02 and Chief Counsel Ruling 2014-01 both describe it the same way. Multiply the compensation recognized at vest by California working days from grant to vest, then divide by total working days in that same period.
The period is not the calendar year of the vest, and it is not only the months after you gave notice. It runs from the grant date to the vest date for that tranche. A four-year grant can leave a large California fraction even when the vest happens two years after you moved.
Count days you actually worked. A week of vacation in Hawaii is not a California workday. And a remote week for a California team while you live in Texas usually is not one either. A trip back to the California office is. The ratio should reflect services, not where your mailbox sat.
Who uses the grant-to-vest ratio
You need the ratio when residency and the work location do not match the full grant period. Three patterns cover almost every case we see.
- You leave before vest. You were granted the units as a California resident, then moved and kept working. The California days in the grant-to-vest window stay in the numerator.
- You move in before vest. You earned part of the grant in another state, then became a California resident. California-source pay is the California workday fraction, and worldwide income is taxed for the resident months.
- You are a nonresident who works some California days. Those days belong in the numerator even if you never became a resident. Occasional office weeks still count.
A clean resident grant is the exception. If every working day from grant to vest was in California, and you were a resident on vest day, the ratio is 100 percent. Do not invent a split just because the employer is based here or the shares are traded here.
Part-year residents also have a second layer. For the months you were a resident, California taxes all income, whatever its source. For the months you were not, it taxes California-source income only. The RSU fraction feeds that second layer. It does not replace the residency test.
How to apply the working-day ratio
Do this for each vesting tranche. Grants from different years should not share one fraction, because the grant dates differ.
- Write down the grant date and the vest date for that tranche. Ignore the day you decided to move.
- From payroll or a personal log, list working days in California and working days everywhere during that period.
- Divide California working days by total working days. That is the California-source percentage.
- Multiply the percentage by the ordinary income recognized at vest. The result is the California-source compensation.
- Report that amount on the nonresident or part-year return. Keep the day log with the return.
Here is the arithmetic on a simple move. An employee was granted units on January 1, 2022, and a tranche vests on January 1, 2026. They worked 500 days in California and 300 days in Texas during that window, so the California percentage is 500 divided by 800, or 62.5 percent. If the vest is worth $80,000, California-source compensation is $50,000. The other $30,000 follows the Texas workdays.
The $80,000 is still wages for federal purposes. California sourcing does not shrink the federal number. It only decides how much of that wage lands on the California return. If Texas also taxes the vest, a credit for taxes paid to another state may be available. The credit is claimed on the resident state’s return, so the order depends on which state claims you as a resident for the vest date.
What changes on the California return
Residents use Form 540 and report the full vest. Part-year residents and nonresidents use Form 540NR. Publication 1100 (2025) is the FTB instruction for nonresidents and people who change residency. Publication 1031 is the residency reference. Read it before you assume a move date on a lease equals a change of residency.
On a 540NR, California computes tax as if you were a resident on all income, then multiplies by a fraction. The numerator is California taxable income. The denominator is total taxable income. Understating the RSU fraction lowers the rate that applies to your other California-source income, which is why the FTB looks hard at equity on these returns.
For 2025, the single rate schedule reaches 12.3 percent on taxable income over $742,953. An extra 1 percent Mental Health Services Tax applies to taxable income over $1 million. Those are resident-schedule rates. Your 540NR effective rate can be close to them when the vest is large, even if only part of the vest is sourced here.
Use the rows below as a filing map, not as a substitute for the day count. Each row is one residency pattern. Match your facts before you pick a form.
| Situation at vest | California compensation | Return |
|---|---|---|
| Resident for the full grant-to-vest period. | 100 percent of the vest. | Form 540. |
| Left California during the vesting period. | California workdays divided by total workdays, times the vest. | Form 540NR. |
| Nonresident with some California workdays. | Same workday ratio. | Form 540NR. |
| Moved into California during the period. | Workday ratio, plus all income for resident months. | Form 540NR. |
Employer payroll often withholds as if you still lived at the address in the HR system. If that address is wrong, California withholding can be zero on a vest that is still partly California-source. The gap is your problem on the 540NR, not the broker’s.
Withholding still follows the federal vest
Sourcing does not change the federal withholding rule. IRS Publication 15 for 2026 says the flat rate on supplemental wages stays 22 percent. It rises to 37 percent once supplemental wages from that employer pass $1 million in the calendar year. Restricted stock at vest is supplemental wages. The 22 percent figure is a deposit rate. It is not your tax rate.
A person who moved to a no-tax state can still owe California on the sourced slice. Plus federal tax at 32 or 35 percent, while the employer withheld 22 percent. Estimated tax is how you close that gap. The California estimated tax due dates are the calendar to use, and the payment belongs to the year of the vest, not the year you sell.
If you moved mid-year, split the estimate by state only after the workday ratio is done. Paying the new state in full and paying California nothing is the pattern that creates a notice. A short letter from payroll showing the grant date, vest date, shares, and fair market value belongs in the same file as the day count.
The later sale is not part of the ratio
Once the shares vest, the fair market value you already included in wages becomes your basis. A sale after that is a capital gain or loss. California taxes a resident on that gain. It taxes a nonresident on that gain only when the stock is a California-source asset, which publicly traded employer stock from an RSU vest almost never is.
Do not run the working-day ratio a second time on the sale. The ratio already did its job at vest. Applying it again to the gain double-counts the compensation and invents a California stock-sale tax the law does not impose. This is also why a broker 1099-B that shows zero basis is dangerous. If you report the full sale price as gain, you tax the same value the vest already taxed. Correct the basis to the vest-date value before you file.
Holding the shares for more than a year can lower the federal rate on the gain. It does not change how much of the vest was California-source. Selling on the vest date to cover tax is a separate, usually small, gain or loss. It is not a sourcing method.
Records to keep before you file
The ratio is only as good as the log behind it. Build the file in the month you move, not in April two years later. Payroll will not reconstruct your travel for you.
- Grant agreements for every tranche, with the grant date and the vesting schedule.
- Vest confirmations showing shares and the fair market value used for wages.
- A working-day log from grant to vest, split between California and everywhere else.
- Travel records for California office days after the move. Badge data and flight receipts both help.
- The W-2 and any pay stub that breaks out the vest. You need this when California withholding was skipped.
- The move file itself: lease end, new residency, and voter or license dates, for the Publication 1031 test.
A plain explanation of how RSUs work is useful if the grant terms are still unclear. The sourcing file is what you add on top of that. If you also hold options, keep them out of this ratio. Options use their own sourcing rules, and an 83(b) election does not apply to a standard RSU that pays out only at vest.
Frequently asked questions
Does leaving California before my RSUs vest eliminate California tax?
No. California can tax the fraction of the vest tied to California working days between the grant date and the vest date. Moving changes the percentage. It does not reset the grant.
What days go in the California RSU sourcing ratio?
Use working days, not calendar days. California working days from grant to vest are the numerator. Total working days in that same period are the denominator. Count a day in the office in California even if you had already moved.
I am a nonresident who sometimes works in California. Do my RSUs get sourced here?
Yes, to the extent of those California workdays. Chief Counsel Ruling 2014-01 applies the same grant-to-vest ratio to a nonresident who performed services in California. You do not have to have been a resident at grant.
Does California tax the gain when I sell the shares after I move?
The vest and the sale are different events. The workday ratio applies to compensation at vest. A later gain on publicly traded shares is generally not resourced with that ratio. Fix your basis to the vest-date value so the sale is not taxed twice.
My employer withheld nothing for California after I moved. Am I done?
Not if part of the vest is still California-source. Federal supplemental withholding at 22 percent, or 37 percent above $1 million from that employer, does not pay the California slice. Plan an estimate for the year of the vest.
Get a sourcing review before the vest
The workday ratio is simple, and the records are not. A wrong grant date or a missing office trip changes the California number on a 540NR. Clear Peak Accounting helps California professionals sort the vest, the move, and the estimate before the shares land.
Call (424) 430-3272 or start a conversation with our Santa Monica team. Bring the grant date, the vest date, and a draft of your working-day log.