Last reviewed September 30, 2026. The rules below still reflect current California law.
Moving out of California can change how your stock awards are taxed. This guide explains California equity compensation rules for restricted stock units (RSUs), incentive stock options (ISOs), nonqualified stock options (NSOs) and employee stock purchase plans (ESPPs).
In short, California taxes the part of your equity income that relates to work you did in the state. So it matters where you worked between the grant date and the vesting or exercise date. For full details, see FTB Publication 1004.
Restricted stock units (RSUs)
Here is an example. Say your company grants you 4,000 RSUs with a four-year vesting schedule and a one-year cliff. Then, six months after the grant, your company transfers you out of California.
After your first year, 25% of your RSUs vest. To figure what you owe California, you need to know how many days you worked in the state between the grant date and the vesting date.
Even after you move, California may still tax part of your RSU income. To find that part, you use an allocation ratio based on your California workdays:
Allocation ratio = California workdays between grant and vest ÷ total workdays between grant and vest
What happens next depends on your new state. For example, Texas and Washington have no state income tax. So only California would tax its share. On the other hand, if you move to a state with an income tax, such as Massachusetts, both states may try to tax the same income. In that case, a credit for taxes paid to the other state may reduce the overlap.
ISOs and NSOs under California equity compensation rules
For ISOs and NSOs, the allocation works the same way. However, you use the exercise date instead of the vesting date to figure the ratio.
Employee stock purchase plans (ESPPs)
Say you buy shares under an ESPP, either as a California resident or a nonresident. Later, you sell the stock as a nonresident. In that case, California taxes the ordinary income to the extent you worked in California between the grant date and the purchase date. Meanwhile, any capital gain is sourced to your state of residence when you sell.
ESPP example
Your employer grants you an ESPP option on February 1, 2024. Then you exercise it on February 1, 2025. During that time, you are a California resident, and you perform 50% of your services in California. On June 1, 2025, you move permanently to Nevada. Finally, on January 15, 2026, you sell the stock at a gain.
Because you sold before meeting the holding period rules, this is a disqualifying disposition. So the spread between the stock’s value on the exercise date and the option price is taxed as wages. Since you did 50% of your work in California, California taxes 50% of that wage income. However, any gain above the exercise-date value is sourced to Nevada, where you lived when you sold.
Residency and reporting tips
Beyond these rules, clients often ask how California decides residency. This matters because California taxes full-year residents on their worldwide income. Also, ask your employer to update your home state on its payroll records.
California’s Office of Tax Appeals applied this same workday method in Matter of Hall (2025-OTA-113). The decision confirms that becoming a nonresident before you exercise options or your RSUs vest doesn’t, by itself, end California tax on the part earned while you worked in California.
You can also allocate income manually on your tax returns. However, manual allocations can draw questions from tax agencies. For that reason, we recommend keeping clear records of your workdays and scheduling a consultation.
Download: California Equity-Based Compensation Summary Table
Get help with California equity compensation
Moving states with unvested stock can get complicated fast. To review your situation, call us at (415) 842-2940 or book a tax strategy session.
This article provides general information only and is not tax or legal advice. Tax outcomes depend on individual facts and circumstances. Contact us about your specific situation.