Workday Sourcing

What it means

When your company gives you stock awards like Restricted Stock Units (RSU—a promise of company stock) or options (a choice to buy stock later), states want their share of the tax. If you work in a state like New York or California, they track the days you spent working there between the date you were given the award and the date it vests (the day you finally own it).

Even if you move to a new state before you sell the stock, the state where you earned the award often claims the right to tax that income. They use the number of workdays you spent in their state to figure out what portion of the money is taxable there. This is different from the profit you make later by selling the stock, which is usually taxed only by the state where you live at that time.

A simple example

Imagine Sam lives in New York and gets 100 stock units. The company says it takes 1,000 total workdays to fully own them. Sam works 500 days in New York and then moves to Florida. Because Sam worked 50% of the time in New York, New York taxes 50% of the value of those stocks when they vest. If the stock is worth $1,000 when it vests, New York taxes Sam on $500 of that value. If Sam sells the stock later for $1,200, the extra $200 profit is a capital gain (profit from selling an investment) usually taxed by Florida, where Sam lives now.

Why it matters to you

• You might owe taxes to a state where you no longer live.
• You may need to file tax returns in multiple states for the same stock award.
• Your employer will track your work location to decide how much tax to take out of your paycheck.
• A tax professional can help you navigate these state rules.

Common mistakes to avoid

• Forgetting to report your income to the state where you earned the stock.
• Assuming only your current home state cares about your stock taxes.
• Losing track of how many days you spent working in different states each year.

Words used on this page

• Restricted Stock Unit (RSU): A promise from your company to give you shares of stock once you meet certain goals.
• Vesting: The process of meeting the requirements to officially own your stock awards.
• Capital Gain: The profit you make when you sell an investment for more than you paid for it.
• Option: A legal right to buy company stock at a set price by a certain date.