Executive Summary
What is Equity Compensation for Remote Workers: Multi-State Tax Considerations?
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Federal Taxation of Equity Compensation (Uniform Across States)
Equity compensation, such as restricted stock units (RSUs), non-qualified stock options (NSOs), and incentive stock options (ISOs), is taxed federally under Internal Revenue Code (IRC) Section 83 as ordinary income upon vesting or exercise, regardless of the employee's work location. Treasury Regulation §1.83-1(a) defines property transferred in connection with services as includible in gross income at fair market value (FMV) when transferable and not subject to substantial risk of forfeiture.26 CFR 1.83-1
- RSUs: Taxed as ordinary income at vesting based on FMV. Employer withholds FICA (Social Security up to $184,500 wage base in 2026** and Medicare taxes) and federal income tax. Publication 15-B (2026); Rev. Rul. 2026-1 (IRB 2026-02) (noting 2026 SS wage base).
- NSOs: Taxed at exercise on bargain element (FMV minus exercise price). Example: Employee exercises NSO for 1,000 shares at $10/share when FMV is $50/share; $40,000 ordinary income ($40/share x 1,000). Withholding at 22% flat supplemental wage rate (or 37% if total supplemental > $1M/year). Publication 15-B (2026), p. 12.
- ISOs: No regular income tax at exercise if held; alternative minimum tax (AMT) on bargain element. Qualifying disposition (held 2+ years from grant, 1+ year post-exercise) taxed as long-term capital gain. Reporting: Form 3921 (ISO exercise), Form 3922 (stock transfer). IRC §422; Publication 525 (2026).
Section 83(i) election allows deferral of income on eligible stock up to $25M FMV or 10% company value for non-insiders, reported on Form 15620 within 30 days of grant. [IRC §83(i)](htt
Footnotes
Primary Sources
| Source | Type | URL |
|---|---|---|
| 26 CFR 1.83-1 | Reference | https://www.law.cornell.edu/cfr/text/26/1.83-1 |
| Publication 15-B (2026) | Reference | https://www.irs.gov/publications/p15b |
| Rev. Rul. 2026-1 (IRB 2026-02) | Reference | https://www.irs.gov/pub/irs-pdf/p5440.pdf |
| Publication 15-B (2026), p. 12 | Reference | https://www.irs.gov/pub/irs-pdf/p15b.pdf |
| IRC §422 | Reference | https://www.law.cornell.edu/uscode/text/26/422 |
Disclaimer: This guide discusses legal tax optimization strategies only. Tax evasion is illegal and is never recommended. This content is for educational purposes and does not constitute tax, legal, or financial advice. Tax laws vary by jurisdiction and change frequently. Always consult a qualified tax professional (CPA, tax attorney, enrolled agent) before making decisions based on this information. The authors accept no liability for actions taken based on this content.