RSU granted in CA, but vested after moving to NY

[hari]

I moved from CA to NY in 2019 and continued to work for the same company. My company did not withheld CA taxes the following years ( 2020 onwards ) when the RSUs vested, they only withheld NYS and NYC taxes. I recently only found out I have the pay taxes based on the grant date location as well, meaning I had to file CA tax return. I did not file CA tax return for the years 2020, 2021 and 2022. 

I need advice on what I should do now. Do I need to file the CA returns and amend NY returns for the years 2020, 2021 and 2022?  If yes, will the taxes I pay to CA get credited in the amended NY return when using turbotax?

[TomD8]

With RSU's, CA taxes non-residents on the wage income to the extent that services were performed in California from the grant date to the vesting date.  See Section G of this California tax publication:

https://www.ftb.ca.gov/forms/misc/1004.html

In other words, as a CA non-resident, income from RSU's with a grant date after you ceased working in California would not be subject to CA income tax.

Your new resident state would normally grant you an "other state credit" if you have income that is taxed by both CA and the new resident state.  (Note: if the new state is AZ, OR, or VA, the credit would be "reversed" - it would be granted by CA, not by the new resident state.)

[hari]

Thanks for the reply.

So in my case, would I have to file CA tax returns for 2020, 2021 and 2022? And amend my NY returns to receive the credit? 

[Opus 17]

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@hari wrote:

Thanks for the reply.

So in my case, would I have to file CA tax returns for 2020, 2021 and 2022? And amend my NY returns to receive the credit? 

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Probably not.  The income is only taxable in the year the RSU was vested.  You don't say when that was.

Let's guess the RSU vested in 2022 and you are working on a late tax return.  The income is only reported on your 2022 return since that's when it vested.  

You need to start by counting the days from the date the RSU was awarded to the date it was vested.  Let's assume it was awarded on July 1, 2019 and vested June 30, 2022 (exactly 3 years, or 1095 days).  Let's also assume you moved to New York on September 1, 2019.  That means that, for the period between the award and the vesting, you lived 62 days in California and 1033 days in New York.  62/1095=5.66%, so 5.66% of the taxable value of the RSU is California taxable income.  You file a 2022 California Non-Resident return and report 5.66% of the income as California income.  You include all the income on your New York return.  New York will give you a tax credit for the amount of tax you pay on your California non-resident return which will reduce your NY tax.

You only report income when the RSU actually vests, so the only reason you would file amended returns for the years in between is if part of the RSU vested in each tax year.  

[hari]

Sorry, I thought I mentioned it in my initial question.

Your example is close to my situation. The RSUs I was awarded in CA vested in 2020, 2021 and 2022 after my move. I did not file CA returns and instead included all the RSU income in my NY return.

[TomD8]

With regard to your California tax obligation after you became a New York resident, the issue is when the RSU's were granted, not vested.

Once you became a New York resident, you would be taxed as a non-resident by CA only on RSU's that were granted when you were working in California.

Your CA taxable income from those RSU's would be according to the proportion: days worked in CA after the grant date divided by total days between grant date and vesting date.  

To quote from the CA tax reference I cited in my previous post:  

"on the vesting date:

• California will tax the wage income to the extent services were performed in California from the grant date to the vesting date."

Bottom line: any RSU that was granted after you ceased performing services in California would not result in any California-taxable income.

[Opus 17]

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@hari wrote:

Thanks for the reply.

So in my case, would I have to file CA tax returns for 2020, 2021 and 2022? And amend my NY returns to receive the credit? 

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RSUs that you were awarded after you moved out of California are not taxable income in California.  (RSUs that were awarded while you lived in California and vested after you moved are partly taxable in California.)

For W-2 employees, California does not apply a non-resident income tax to income that is earned and paid if you do not physically live or work in California, even if the employer is located in California.  This is true for regular wages, bonuses, and stock options.

If your move to NY is temporary, and you have maintained a permanent residence in CA that you plan to return to, then you are still a CA resident and we need to have an entirely different conversation. 

Now, if you worked in California for (let's say) one week a year for mandatory training and meetings, then 1/52nd of your income each year would be treated as California income.  You would have an obligation to report, although you might not get caught if you didn't.  And this might affect the taxability of your vested RSUs as well as your wages.  That's also a conversation we can have, if you sometimes visit California to perform work in person.