States generally, though not always, tax wages based on where the work is physically performed. For regular W-2 wages, this is straightforward — work two weeks in New York, and New York can tax that portion of your salary. Equity compensation follows different sourcing rules.
How sourcing works for equity (varies by state):
🔹 NSOs: Sourced based on workdays in each state from grant date to exercise date. Ordinary income is recognized at exercise.
🔹 ISOs: Sourced based on workdays in each state from grant date to exercise date. The spread creates an AMT adjustment (not ordinary income) at exercise.
🔹 RSUs: Sourced based on workdays in each state from grant date to each vest date. Ordinary income is recognized at vest.
That means even after you move, a former state may still have a claim on part of your equity income.
Where people get surprised If you were granted options while living in California, then moved to Texas and exercised later, California can still tax a portion of that income — based on the time you worked there from grant to exercise.
The typical formula: (Days worked in CA ÷ Total days from grant to exercise/vest) × Total equity income
Common scenarios
🔹 You move states but exercise options shortly after — your old state gets a large share of the income.
🔹 You move states and RSUs vest over several years — your former state's share shrinks with each vest.
What the W-2 often misses Your W-2 reflects where payroll thinks you worked — not necessarily where you physically were. And for equity, the state-by-state sourcing often isn't fully reflected on the W-2 at all. The burden usually falls on you to allocate correctly when filing.
What to do Track your physical work location from the moment equity is granted. Update payroll immediately when you move. And don't assume your tax software will properly handle multi-state equity sourcing — it almost always requires manual review.
For educational purposes only. Not tax, legal, or investment advice.