RSUs (Restricted Stock Units) are taxed as ordinary income at vesting — federally at up to 37%, plus state income tax. The state rate depends on your state of residence on the vest date: California residents pay up to 13.3% on RSU income; New York up to 10.9%; Texas and Florida residents pay 0% state tax. For tech workers with multi-year vesting schedules who move between states, RSU income may be allocated across multiple states based on your workdays in each state during the vesting period.
At a glance
Key Facts
Federal RSU Tax
Taxed as ordinary income at vest; federal rates 22–37% for most tech workers; employer withholds at 22% flat (supplemental rate) on most RSU income above basic withholding
State RSU Tax: Highest
California: 13.3% on RSU income over $1M; New York: 10.9% (NYC adds 3.88% for city residents); Hawaii: 11%
State RSU Tax: Zero
Florida, Texas, Nevada, Wyoming, South Dakota, Tennessee, New Hampshire (on wages): 0% state income tax on RSU vesting
Multi-State Allocation
If you move between states during a vesting period, states may claim tax on RSU income allocated to the period when you worked in their state — even after you've moved away
Capital Gains After Vest
After RSUs vest and are held, subsequent appreciation is taxed as capital gains (long-term if held 12+ months from vest date). State capital gains rates vary: CA taxes gains as ordinary income; WA has 7% capital gains tax above $262K
FICA on RSUs
RSUs are subject to Social Security (6.2%, capped at $168,600) and Medicare (1.45% + 0.9% Additional Medicare Tax above $200K single) at vest
Introduction
Restricted Stock Units (RSUs) are one of the largest components of compensation for technology, finance, and startup employees — and the state income tax treatment of RSUs can create a difference of hundreds of thousands of dollars over a career for employees in high-tax vs no-tax states. This guide covers how RSUs are taxed federally, how each state treats RSU income, and the complex multi-state allocation rules that apply when you move between states during a vesting schedule.
Section 01
How RSUs Are Taxed: Federal Rules
RSUs follow a specific federal tax treatment:
At Vesting
RSUs are taxed as ordinary income when they vest (become unrestricted). The taxable amount is the Fair Market Value (FMV) of the shares on the vest date multiplied by the number of shares vesting. This income appears on your W-2 in Box 1 (wages). Employers typically withhold federal income tax at the 22% supplemental rate (or 37% for amounts above $1 million in a year). FICA (Social Security + Medicare) is also withheld. After vesting, your cost basis for capital gains purposes is the FMV on the vest date.
After Vesting: Capital Gains
If you hold RSU shares after vesting: appreciation above the vest-date FMV is taxed as capital gains. Short-term (held less than 12 months from vest): taxed as ordinary income (up to 37% federal). Long-term (held 12+ months from vest): taxed at preferential 0%, 15%, or 20% rates depending on income. For most tech workers, selling RSUs immediately at vest (to avoid single-stock concentration risk) means only the ordinary income tax at vest applies — no capital gains component.
RSU Withholding Deficiency Issue
Many employees are under-withheld on RSU income. Employers withhold at 22% (the supplemental rate), but employees in high tax brackets actually owe 37% federal + state. The deficiency must be paid through estimated quarterly taxes (Form 1040-ES) or the employee faces underpayment penalties. This is one of the most common tax surprises for tech employees receiving large RSU grants.
Section 02
RSU Tax by State and Multi-State Allocation
State income tax on RSUs is imposed by the state where you lived and worked on the vest date:
RSU State Tax Rates (2024)
State
RSU Tax Rate
Notes
California
1–13.3%
Most tech workers: 9.3–13.3%
New York (state + NYC)
6.85–14.78%
NYC adds 3.88% on top of NY state 10.9%
Massachusetts
5% (+ 4% above $1M)
Fair Share Amendment: 9% on income over $1M
Oregon
9.9% (+ Portland metro)
Portland: up to 13.9% combined
New Jersey
1.4–10.75%
Top rate on income above $1M
Washington State
0% income tax
7% capital gains tax on gains above $262K after vest
Texas, Florida, Nevada
0%
No state income tax
Colorado
4.4%
Flat rate
Illinois
4.95%
Flat rate
Multi-State Allocation: The Critical Issue for Moving Employees
If you move between states during a multi-year vesting schedule, states may allocate RSU income based on your workdays in that state during the vesting period (from grant date to vest date). Example: You receive a 4-year RSU grant while living in California, then move to Texas after 2 years. When the remaining RSUs vest: California asserts the right to tax 50% of the vest value (the 2 years when you worked in California / 4-year total vesting period). Texas has no income tax. Result: you owe California income tax on half the vest value — even though you no longer live in California. This is called 'source-based allocation' of RSU income and California is aggressive in asserting this right.
State-Specific RSU Allocation Rules
California: Allocates RSU income using workday allocation from grant date to vest date. Most aggressive state for non-residents' RSU income. Requires filing CA 540NR for CA-sourced RSU income even after departing CA.
New York: Similar allocation rule — NY-source RSU income based on NY workdays during vesting period. NY audits are common for large RSU vesting events.
Massachusetts: Allocates RSU income based on days worked in MA during the service period. File MA 1-NR/PY as a non-resident for MA-source RSU income.
Washington State: No income tax on RSU vesting, but capital gains tax (7%) applies on gains above $262K after vest if you're a WA resident when you sell.
RSU taxation, multi-state allocation, and estimated quarterly payments are complex. TaxHub connects you with CPAs who specialise in tech worker equity compensation tax.
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⚠ Not the cheapest option — best for complex situations and expats who want a dedicated CPA.
If I move from California to Texas before my RSUs vest, do I owe California tax?
Possibly — if you received the RSU grant while in California, California will allocate a portion of the vest income to California based on the fraction of the vesting period you worked in CA. Example: 4-year vesting, moved to Texas after 2 years, vest occurs now. CA claims 2/4 = 50% of the vest value as CA-source income. You owe California tax on that 50% as a non-resident. You must file a California non-resident return (540NR) and pay California income tax on the CA-allocated portion. The longer you were in California during the vesting period, the higher your California allocation.
Q
Should I sell RSUs immediately at vest to minimize taxes?
Most financial advisors recommend selling RSUs immediately at vest (same-day sale) unless you have specific reasons to hold the stock. The tax rationale: holding RSUs creates single-stock concentration risk (if the stock falls, you can't recover the taxes already paid at vest). Only upside appreciation after vest qualifies for capital gains treatment. If you're in a high-tax state at vest, the ordinary income tax is already owed regardless of when you sell. The main reason to hold: if you expect the stock to appreciate significantly and you're comfortable with the concentration risk — holding 12+ months converts future gains to long-term capital gains rates.
Q
How does the 22% federal supplemental withholding work for RSUs?
Employers withhold federal income tax on RSU income at the 22% supplemental rate (for RSU values under $1 million in a year; above $1 million, withholding jumps to 37%). However, your actual marginal federal rate may be 32%, 35%, or 37% depending on total income. The 22% withholding creates a deficiency that you must make up through quarterly estimated tax payments (Form 1040-ES due April 15, June 15, September 15, January 15) to avoid underpayment penalties. Many tech employees face a large tax bill in April because they relied only on employer RSU withholding without supplemental estimated payments.
Q
What is the state tax difference between a California and Texas tech worker receiving $200,000 in RSUs?
California: $200,000 RSU income at 13.3% state tax = $26,600 in California state income tax. Texas: $0 state income tax. Annual difference: $26,600 for one vest event. For a tech worker with $200,000/year in vesting RSUs over 4 years: $106,400 in cumulative California state income tax vs $0 in Texas. This is the single most cited tax differential in tech worker departure discussions — particularly among senior engineers and managers at Bay Area tech companies.
Disclaimer:This guide provides general tax information for educational purposes only. RSU taxation, multi-state allocation rules, and withholding requirements are complex and subject to change. This is not tax or legal advice. Consult a CPA or tax attorney for your specific situation.