CA → TX with unvested RSUs: the work-source allocation trap

A common belief: "I moved from California to Texas in August. Texas has no state income tax. So my future RSU vests are tax-free at the state level." This is wrong, and it is wrong by tens of thousands of dollars over a typical 4-year vest cliff. California uses a work-source allocation rule that taxes your unvested equity comp based on where you worked during the vesting period — not where you live when it vests.

The work-source rule, explained

California Franchise Tax Board (FTB) Publication 1004, "Stock Options," articulates the rule clearly: equity compensation income is sourced to the state where the services were performed during the vesting period. For a 4-year RSU vest:

• Each quarterly vest covers a portion of the vesting period (typically the months between grant and that vest).
• For each vest, the vesting period is split into "months worked in CA" and "months worked elsewhere."
• CA taxes its proportional share of the vest at its top marginal rate (13.3% — the highest state rate in the US).
• The OTHER state (or no state, if you move to TX/FL/NV/WA) taxes its share.

Worked example — Daniel's CA→TX move

Daniel is a senior engineer who:

• Worked in CA from August 15, 2022 to July 31, 2024 (24 months in CA).
• Moved to TX on August 1, 2024.
• Has 1,600 unvested RSUs from a grant dated August 15, 2022, vesting quarterly through August 2026.
• Each vest hits at ~$20,000 FMV.

Daniel assumed: "TX has no state tax. My post-August-2024 vests are CA-tax-free." Walking the FTB work-source rule:

• **Aug 2024 vest (vesting period: Aug 2022 – Aug 2024, 24 months).** All 24 months were CA. CA gets 100% of the $20k vest at 13.3% = **$2,660 owed to CA**.
• **Nov 2024 vest (27 months total: 24 in CA + 3 in TX).** CA share: 24/27 = 88.9% × $20k × 13.3% = **$2,365**.
• **Feb 2025 vest (30 months total: 24 in CA + 6 in TX).** CA share: 24/30 = 80.0% × $20k × 13.3% = **$2,128**.
• **May 2025 vest (33 months).** CA share: 24/33 = 72.7% × $20k × 13.3% = **$1,934**.
• **Aug 2025 vest (36 months).** CA share: 66.7% × $20k × 13.3% = **$1,773**.
• **Nov 2025 vest (39 months).** CA share: 61.5% × $20k × 13.3% = **$1,636**.
• **Feb 2026 vest (42 months).** CA share: 57.1% × $20k × 13.3% = **$1,519**.
• **May 2026 vest (45 months).** CA share: 53.3% × $20k × 13.3% = **$1,418**.
• **Aug 2026 vest (48 months — final).** CA share: 50.0% × $20k × 13.3% = **$1,330**.

Total CA tax owed across post-move vests: roughly **$16,800** of CA state tax that Daniel did not expect. Adding state-AMT exposure on any ISO exercises during the CA work period: another $1k–$5k. If Daniel does not file quarterly estimates to CA, CA §19136 underpayment penalties (~5% annualized): another $400–$1,500 on top.

Filing mechanics — Form 540NR

For tax years 2024 onward (after Daniel's move), he is a NON-RESIDENT of California with CA-sourced income. He files:

• **Form 540NR (CA non-resident return).** Reports the CA-allocated portion of each vest as CA-source income. He pays CA tax at the top marginal rate on that allocated portion.
• **Federal Form 1040** treats all RSU income normally (no state distinction).
• **No TX state return required** (TX has no state income tax).

For 2024 specifically (the move year), Daniel is a PART-YEAR RESIDENT and files the long Form 540NR with both the resident-period income and the non-resident-period CA-source income.

How to avoid the CA §19136 underpayment penalty

CA expects you to make quarterly estimated payments on CA-source income, including these allocated RSU vests. Most tech workers who move are surprised by the CA tax liability AT FILING because their employer (now TX-payrolled) is no longer withholding CA tax.

Two safe-harbor mechanisms under CA §19136:

1. Pay 90% of the current-year CA tax through withholding + estimates by Q4 (Jan 15 of the following year).
2. Pay 110% of last year's CA tax (if CA AGI was over $150k) or 100% (if under) through the same channels.

For a post-move resident, the cleanest path: estimate your post-move CA tax using the work-source rule, divide by 4, and submit CA Form 540-ES quarterly. Mathstub's Multi-State Equity Comp Tax Planner walks the allocation per vest + the quarterly estimate calculation.

Variants — NY, NJ, MA, OR

California is the most aggressive but not unique. Several other states apply work-source allocation to equity comp:

• **New York:** uses a similar allocation rule + the notorious "convenience of the employer" rule, which can claim 100% of your income even after a move if the employer is NY-based and the move was for your convenience (not employer-driven). See NY Tax Bulletin TSB-M-06(5)I.
• **New Jersey:** day-count method for non-residents; effective work-source allocation.
• **Massachusetts:** TIR 02-21 walks the stock-comp allocation rules for non-residents.
• **Oregon:** Day-count allocation under ORS 316.127.
• **Pennsylvania:** Different rules — PA doesn't allocate based on vesting period in the same way; check REV-714.

How to model your situation

Three things to do before / during your move:

1. **Pull your offer letter + vest schedule.** Note each vest date and the FMV-or-estimated-FMV per vest.
2. **Set your move date.** This anchors the "months in CA" calculation for each vest.
3. **Run the Mathstub Multi-State Equity Comp Tax Planner or the State Stock-Comp Lookup.** Get the allocated CA tax owed per vest + the quarterly schedule.

Catching this in October (before your first post-move tax year ends) is the difference between a clean transition and a $1,500 underpayment penalty + a confused CPA visit.

Sources: California Revenue and Taxation Code §17041 (top marginal rate); CA RTC §17951 (non-resident income sourcing); CA RTC §19136 (underpayment of estimated tax); CA FTB Publication 1004 (Stock Options); CA FTB Publication 1005 (Pension and Annuity Guidelines); CA FTB Form 540NR (non-resident return); NY TSB-M-06(5)I (NY convenience-of-employer rule); NY Tax Law §631 (non-resident income allocation); Massachusetts TIR 02-21 (stock-comp allocation for non-residents); New Jersey GIT-19 (day-count allocation); Oregon ORS 316.127 (non-resident allocation); Pennsylvania REV-714 (compensation allocation). IRC §83(a) (federal vest income recognition).