RSU granted in MA but vested after I moved to CA. I am taxed by both states.

[JuiceKing]

I moved from MA to CA in June 2021. Some of my RSU vested after I moved.

My paycheck and w2 shows that I payed taxes to both state.

CA treated 100% of vested RSU as income.

MA treated a portion of it as income. (My employer told me that was because those RSU were granted in MA)

I think I am a part-year resident in MA. According to this page from mass.gov:

Part-year residents - Include gross income from all sources during your residency period.
Nonresidents - Include gross income from sources in Massachusetts. 

I have three questions:

1. Does that mean the RSU income after I moved out of MA in 2021 should not be taxed by MA?
2. My paycheck shows that in 2022 (I am a CA resident), vested RSU are still being taxed by MA. Is that because those RSU are considered from "Massachusetts source"?
3. How do I prevent myself from being double taxed? For 2021, can I just remove those RSU income from MA gross income? For 2022, should I get tax credit from CA for the RSU taxes I paid to MA?

[MaryK4 · Accepted solution]

1. The RSUs are Massachusetts-source income so it will be taxed if you are a resident or nonresident.

Massachusetts gross income includes income from sources within Massachusetts. It specifically includes income gained from or connected with any trade or business, whether or not you were actively engaged in a trade or business or employment in Massachusetts in the year you received income from:

• Stock options (nonqualified) granted or connected to employment, or to conducting a trade or business in Massachusetts
• Stock ownership as part of compensation for personal services in Massachusetts

2. You will have to file  2022 nonresident Massachusetts tax return for the RSUs.

3. You will be able to take a "credit for taxes paid to another state" in California.  NOTE: For 2021, you will have to determine the amount that vested after you moved to California- this will be the Massachusetts nonresident income for the year and the amount you will indicate as the California income taxed by both states.

[JuiceKing]

For anyone who has similar situation. You also need to file Schedule R/NR besides Form 1-NR/PY according to this page about residency status. Schedule R/NR says:

"If you received Massachusetts source income before or after you became a Massachusetts resident for part of the year and your gross income exceeded $8,000 for the year, you must file a Form 1-NR/PY as both a nonresident and part-year resident."

So my assumption in Question 1(part-year resident does not pay tax after residency ended) was incorrect.

[almargahi]

I am in a similar situation but I moved in June 2020 from MA to AZ, and 2021 I was 100% AZ resident, but I am still paying taxes to MA and received two W2's.  In the AZ taxes interview, I am asked if I paid taxes to another state, and the answer is yes, but then it shows some auto-populated amounts that are not making sense to me (income for MA as shown in the W2, plus some other income like capital gains, etc.). I am just afraid TT would mess things up if I leave everything as default meaning I leave the "Amount if different" boxes blank for "Total taxable income" and "Total tax".... 

Not sure if I am making sense but please let me know if I am missing anything. 

[GeorgeM777]

If you are paying tax to MA, we assume you must have MA source income.  As to why you are seeing some amounts that are auto-populated, it could be that if you used TurboTax when you were a MA resident, then some of those income amounts may be showing up on your AZ return.  

Regarding completing your return, it appears you are completing your state returns in the right order.  That is, complete your non-resident state first (MA) in order to determine your MA tax.  Then prepare your resident state return (AZ).   You are correct in that the AZ part of TurboTax will ask about taxes paid to another state, and the reason for such a question is to ensure that you get the proper credit on your AZ return for having paid tax to MA on income that AZ would also tax.  

Make adjustments if you feel adjustments need to be made.  Also, follow-up with additional questions as needed.  

@almargahi

[almargahi]

@GeorgeM777  - So for tax year 2021, I just checked my TT 2021, and I had checked 'Non-Massachusetts sourced' for all the RSUs, when I should have left a couple as MA sourced. Do I have to amend my 2021 at all? The amount in refund is like $2 different for MA. 

[GeorgeM777]

Yes, amend the 2021 despite the fact that the difference is minimal.  Neither the 2022 Massachusetts Resident, nor Non-Resident Income Tax instructions provide for a deminimis exception when filing an amended return.  Thus, go ahead and amend so that your prior tax returns are accurate in all respects.

@almargahi