What is the California Tail Tax?
The California Tail Tax is the informal name for California's ability to tax equity compensation that was granted while you were a California resident, even after you relocate to another state or country.
Unlike most states that tax income based on where you live when you receive it, California uses source-based taxation. This means the Franchise Tax Board (FTB) claims a proportional share of your equity income based on the work you performed in California.
Quick Answer: Can California tax my RSUs after I move? Yes. California will tax the portion of your RSUs attributable to work performed in California during the grant-to-vest period, regardless of where you live when the shares vest.
The FTB Allocation Formula
California uses a straightforward formula to determine how much of your equity income they can tax:
California Sourcing Formula
CA Taxable Amount = Total Income × (CA Work Days ÷ Total Work Days)
The period measured is from grant date to vesting date for RSUs.
Example Calculation
| Scenario | RSU Value | CA Sourced | CA Tax (13.3%) | Net Savings |
|---|---|---|---|---|
| Stay in CA | $100,000 | $100,000 | $13,300 | — |
| Move to TX (Year 2 of 4) | $100,000 | $50,000 | $6,650 | $6,650 |
| Move to TX (Before Grant) | $100,000 | $0 | $0 | $13,300 |
Key Insight: The earlier you move relative to your equity grants, the less California can tax.
When Does the Tail Tax Apply?
Decision Matrix
| Your Situation | Tail Tax Applies? | Why |
|---|---|---|
| RSUs granted while CA resident | YES | CA sources based on work location during grant-to-vest |
| Stock options granted while CA resident | YES (with flexibility) | Options use grant-to-exercise, giving more planning time |
| Equity granted AFTER leaving CA | NO | No CA-sourced work during compensation period |
| Remote work from CA for non-CA employer | MAYBE | Complex rules—consult a professional |
RSUs vs. Stock Options: Key Differences
| Attribute | RSUs | Stock Options (ISO/NSO) |
|---|---|---|
| Allocation Period | Grant → Vest | Grant → Exercise |
| Planning Flexibility | Low | High |
| Tax Event Timing | At vesting | At exercise (NSO) or sale (ISO) |
| Can Delay Tax Event? | No | Yes |
| Best Strategy | Plan early | Delay exercise post-move |
Why This Matters: Stock options let you choose when to trigger the tax event. If you have unvested ISOs or NSOs and plan to relocate, you can delay exercising until you've accumulated more non-California days. Understanding the fundamental differences between ISO and NSO taxation is critical for California exit planning.
How to Minimize Your California Tail Tax
Step 1: Document Your Clean Break
Change driver's license, voter registration, and vehicle registration to your new state. Close California bank accounts if possible.
- Timeline: Within 30 days of move
Step 2: Establish New Domicile
Sign a 12+ month lease or purchase property. Update employer records, professional licenses, and estate planning documents.
- Timeline: Immediately upon arrival
Step 3: Limit California Visits
Stay under 45 days per year in California. Keep detailed travel logs with receipts.
- Timeline: Ongoing
Step 4: Review Equity Compensation
Calculate tail tax exposure on unvested equity. Consider negotiating new grants if switching jobs.
- Timeline: Before departure
Step 5: Prepare for FTB Audit
High-income departures are frequently audited. Maintain 7 years of documentation.
- Timeline: Ongoing
FTB Audit Risk Factors
The California Franchise Tax Board actively targets high-income individuals who leave the state. Your audit risk increases with:
- ⚠️ Total income exceeds $1 million in departure year
- Significant equity compensation vesting after move
- Maintaining California property (especially as primary residence)
- Spouse or dependents remaining in California
- Frequent returns to California (>45 days/year)
- Professional licenses maintained only in California
- ⚠️ Moving to a zero-tax state (TX, WA, FL, NV)
Key Tax Rates Comparison
| State | Top Rate | Capital Gains | Notes |
|---|---|---|---|
| California | 13.3% | 13.3% | No preferential CG rate |
| Texas | 0% | 0% | No state income tax |
| Washington | 0% | 7% | CG tax on gains >$270K (since 2022) |
| Florida | 0% | 0% | No state income tax |
| Nevada | 0% | 0% | No state income tax |
| New York | 10.9% | 10.9% | NYC adds 3.88% |
Stock Option Planning Checklist
Before you relocate from California with unvested equity:
- ☐ Document your relocation date with multiple sources (lease, license, voter registration)
- ☐ Track work days in CA vs. new state meticulously
- ☐ Delay option exercise until you've accumulated more non-CA days
- ☐ Consider early exercise (83(b) election) before relocating if beneficial
- ☐ Keep records of all CA visits after relocation (stay under 45 days/year)
- ☐ File part-year resident return in year of move (deadline: April 15)
When to Hire a Tax Professional
Consider professional help if:
- Your unvested equity exceeds $500,000 in value
- You're relocating to a zero-tax state from California
- Your total income exceeds $1 million annually
- You have stock options (ISO or NSO) in addition to RSUs
- You plan to maintain any California ties (property, family)
- ⚠️ You've received FTB correspondence or audit notice
Frequently Asked Questions
Can I avoid the tail tax by working remotely from my new state?
The tail tax applies based on where you worked during the grant-to-vest period, not where you work when the equity vests. If you were in California during that period, those days count toward CA sourcing regardless of where you are now.
What if I was only in California for part of the vesting period?
You'll use the allocation formula. If you worked 2 years in CA and 2 years in Texas during a 4-year vest, California can tax approximately 50% of the RSU income.
Does California have a statute of limitations on the tail tax?
California generally has 4 years from the filing date to audit, but this extends to 6 years if income is underreported by 25% or more, and indefinitely for fraud or failure to file.
Can I negotiate with my new employer to "reset" my equity?
Yes, this is a legitimate strategy. If you receive a new equity grant from the same or different employer after establishing residency elsewhere, California cannot tax that new grant (assuming you don't work in CA during its vesting period).
Disclaimer: This guide is for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex and change frequently. Consult with a qualified tax professional for advice specific to your situation.
Last Updated: January 2026 | Author: VestingStrategy Research Team