TL;DR (Too Long; Didn't Read)
The "Trailing Nexus" Trap: California taxes equity based on where you performed the work during the entire vesting period, not just where you live when the shares hit your account.
The Withholding Gap: Texas has no state income tax, but your brokerage often fails to withhold the correct "allocation" for California. This creates a massive, hidden tax liability.
The Cost of Inaction: If you don't manually account for California’s "source income" rules, you risk a five-figure tax bill in April, plus underpayment penalties from the Franchise Tax Board (FTB).
The Symptoms
You moved from a cramped apartment in San Francisco to a spacious home in Austin or Dallas. You updated your address in Workday, your base salary no longer shows CA tax withholdings, and life is good.
Then, your first major RSU or Stock Option vest hits. You look at your pay stub and see a mess. You’re living in Texas (a no-tax state), but California just took a massive bite out of your vest. Even worse, the amount they took doesn’t seem to cover your actual liability, or your brokerage ignored California entirely—leaving you wondering if you’re accidentally committing tax evasion or overpaying a state you no longer live in.
The Technical Deep Dive: The "Allocation" Mechanic
California’s Franchise Tax Board (FTB) is notoriously aggressive. They follow a "Source Income" rule. If you were granted an RSU while working in Mountain View, but you moved to Austin halfway through the vesting period, California claims a right to tax the portion of the vest earned while you were physically present in CA.
The Math: California uses a ratio: (Work days in CA during the vesting period) ÷ (Total work days in the vesting period).
Example: You have a 4-year vest (1,460 days).
You worked in San Francisco for the first 2 years (730 days) before moving to Texas.
When that grant vests, California considers 50% of that income to be "California Source Income."
If that vest is worth $100,000, California expects tax on $50,000 of it—even if you haven't stepped foot in the Golden State for years.
The Multi-State Withholding Failure: Most corporate payroll systems and brokerages (like Schwab or Fidelity) struggle with "trailing nexus." They often default to withholding based only on your current residence. If they withhold 0% for state taxes because you're in Texas, but you actually owe California 9.3% or 13.3% on half that vest, you are instantly under-withheld by thousands of dollars.
The Expensive Mistake
If you assume that moving to Texas "reset" your tax obligations to zero, you are sitting on a financial landmine.
The April Surprise: You file your taxes and realize you owe $10,000+ to the State of California that you didn't set aside.
Underpayment Penalties: Both the IRS and the California FTB charge interest and penalties if you don't pay "as you go." Since equity is often a tech worker's largest income event, failing to account for this can lead to penalties that scale with your success.
The "Audit Trail": California tracks W-2s and 1099s religiously. If they see a grant issued in CA but no tax paid upon the vest, their automated systems are highly likely to flag your return.
The Rally Solution: Automated Accuracy for the Modern Nomad
You can spend your weekend building a 12-tab Excel spreadsheet, manually counting "business days" in 2023 vs. 2024, researching California tax brackets, and trying to estimate your total year-end income. Or, you can use a tool built for the modern tech stack.
Rally is the "Education Engine" for your equity.
We realized that for tech professionals, the hardest part of moving isn't the packing—it’s the "Trailing Nexus." Our platform solves this by:
Direct Integration: We sync with your payroll and brokerage accounts to see the entire lifecycle of your grants, not just today's snapshot.
The "Gap" Analysis: Rally automatically applies the California FTB workday ratio formula to your specific move date. We show you exactly how much your company is withholding vs. how much you actually owe.
Real-Time Adjustments: If a vest is coming up in 30 days, Rally tells you exactly how much to set aside in a high-yield savings account or how much to increase your elective withholding to avoid the "April Surprise."
The Soft Sell: You shouldn't need a CPA on retainer just to move to a different state. Rally gives you CPA-level insights in a 30-second dashboard.
Stop Guessing, Start Planning
If you’ve moved from California to Texas (or any other state) in the last three years and you have equity vesting, you have a tax liability that your paycheck isn't showing you.
Don't wait for a letter from the Franchise Tax Board to find out you've been underpaying. Use Rally to run the math, see your "True Net," and take control of your move.
Rally Tax is an Authorized IRS e-file Provider and SOC2 Compliant.
