Moving to Texas Before a Liquidity Event: What California Still Taxes

A move from California to Texas changes what each state can tax from the day you arrive. It does not change what you had already earned before you left. California treats equity compensation as pay for work and keeps the right to tax the share earned on California workdays, whether the shares vest, the options are exercised, or the company goes public after you have settled in Texas. We are based in Texas and see both ends of this move. Below is the rulebook as California’s Franchise Tax Board publishes it, a worked example, and a checklist. Confirm your own facts with a CPA or tax counsel.

Does moving to Texas stop California from taxing my equity?

Not the part earned in California. Once you are a genuine Texas resident, California can tax only California-source income, and wages have their source where the work was done, not where the employer sits or where you live when the money lands (FTB Publication 1031 (2025), Wages and Salaries). Equity awards are wages when they become taxable, so California measures the share of each award earned by California workdays and taxes that share on a nonresident return.

The move does end California tax on everything else: your Texas salary, your investment income, and the gain when you eventually sell. Gain on a stock sale has its source where you live when you sell, so a Texas resident selling shares of a California company owes California nothing on it (FTB Publication 1031 (2025), Sale of Stocks and Bonds). The wage layer built in California stays California’s in proportion to the work done there. The appreciation after each wage event belongs to your new state, which in Texas means no state tax at all.

How does California decide whether you have really left?

By the strength of your connections, not by the calendar. Publication 1031 states the theory in one sentence, “you are a resident of the place where you have the closest connections,” and adds that the strength of your ties, rather than their number, decides the question (FTB Publication 1031 (2025), Guidelines for Determining Residency).

The nine-month figure that circulates online is a presumption that runs one way: “You will be presumed to be a California resident for any taxable year in which you spend more than nine months in this state.” The regulation behind it says the reverse does not hold: “It does not follow, however, that a person is not a resident simply because he does not spend nine months of a particular taxable year in this State. On the contrary, a person may be a resident even though not in the State during any portion of the year” (18 CCR §17016). Counting days keeps you out of the presumption. It does not get you out of California.

The factors the FTB lists are the checklist an auditor works from: time in California versus outside it; where your spouse and children live; your principal residence; the state of your driver’s license, vehicle registrations, professional licenses and voter registration; where your bank accounts are and where your financial transactions originate; the location of your doctors, accountants and attorneys; your place of worship, professional associations and clubs; where your real property and investments are; and the permanence of any California work assignment. The publication calls this “only a partial list” and says “no one factor is determinative” (FTB Publication 1031 (2025), Guidelines for Determining Residency). Its own examples show the test at work: a taxpayer who declares Nevada residency but keeps the California home, spends six or seven months a year in it and retains a social club there remains a California resident, while a family that sells the home, moves with the children, enrolls them in school and gets new driver’s licenses is a part-year resident from the day of the move (FTB Publication 1031 (2025), Temporary or Transitory Purposes, Examples 3 and 5). A change of domicile requires abandoning the old one, physically moving, and intent to remain “permanently or indefinitely as demonstrated by your actions” (FTB Publication 1031 (2025), Meaning of Domicile). Intent is proved by what you did and when.

One safe harbor exists and it is narrow: a California domiciliary outside the state under an employment-related contract for at least 546 consecutive days is treated as a nonresident, with limits on intangible income and return visits (FTB Publication 1031 (2025), Safe Harbor). That protects an expatriate assignment, not an ordinary move to Texas.

How is each type of equity sourced after a move?

Publication 1004 sets a rule for each award, and most turn on one fraction: California workdays over total workdays during the period the award was being earned (FTB Publication 1004, Equity-Based Compensation Guidelines).

Nonresident sourcing rules from FTB Publication 1004, Equity-Based Compensation Guidelines (rev. 01/2015), summary table and sections C through F.

Award	Wage income California taxes after you leave	Gain on the later sale
Restricted stock units	Value at vest, to the extent services were performed in California from grant date to vesting date	Not taxed by California
Nonstatutory stock options	Spread at exercise, to the extent services were performed in California from grant date to exercise date	Not taxed by California
Incentive stock options, qualifying disposition	None; the AMT adjustment at exercise is sourced by California workdays from grant to exercise	Not taxed by California
Incentive stock options, disqualifying disposition	Spread at exercise, sourced by California workdays from grant to exercise	Not taxed by California
Employee stock purchase plan	Ordinary income at sale, to the extent services were performed in California from grant date to purchase date	Not taxed by California

Restricted stock units

RSU value is wages at vest, and for a nonresident California taxes it “to the extent services were performed in California from the grant date to the vesting date,” using California workdays over total workdays from grant to vest, or to the date employment ended if earlier. The FTB’s Example 3 is a Texas move: the employee leaves the company and moves to Texas a month before the stock vests, and with 700 California workdays out of 1,000, “70 percent of your income from the restricted stock is taxable by California” (FTB Publication 1004, section E, Restricted Stock, Example 3). Neither the post-move vest nor the end of employment changes that share.

Nonstatutory stock options

The spread at exercise is wages, sourced by California workdays from grant date to exercise date. Example 2 is also a Texas move: a California resident does all the work in California, moves to Texas, and exercises a month later; the full spread “is characterized as compensation for services having a source in California.” Example 3 shows the split version, 700 of 1,000 workdays for a 70 percent share (FTB Publication 1004, section C, Nonstatutory Stock Options, Examples 2 and 3). Waiting to exercise until after the move does not shrink the fraction.

Incentive stock options

ISOs are the one case where leaving can change the answer, and it depends on how you sell. In a qualifying disposition (no sale within two years of grant or one year of exercise), the gain is income from intangible property sourced to your state of residence at the sale, so a Texas resident is “not subject to income tax by California even though the services that gave rise to the grant may have been performed in this state.” Example 6 has an employee granted and exercised entirely in California who moves away and sells the next year: “California does not tax the capital gain” (FTB Publication 1004, section D, Incentive Stock Options, Example 6).

Two qualifications travel with that rule. A disqualifying disposition is treated as a nonstatutory exercise: the spread at exercise is wages sourced by California workdays from grant to exercise, taxable by California after the move, and only the rise after the exercise date is gain sourced to your new state (FTB Publication 1004, section D, Disqualifying Disposition, Examples 7 and 8). And the alternative minimum tax: federal law and California both treat an ISO exercise as a nonstatutory exercise for AMT, so the spread is an AMT adjustment in the exercise year unless you sell that same year, and for a nonresident the adjustment is sourced by the same workday fraction; California’s AMT rate is 7 percent (Cal. Rev. & Tax. Code §17062). A large exercise in California followed by a move and a qualifying sale can mean California AMT in the exercise year, a possible California AMT credit later, and no California regular tax on the gain. The federal AMT arithmetic for a 2026 exercise belongs to our article on exercising ISOs before an IPO.

Employee stock purchase plans

ESPP shares produce no income until sold. When a nonresident sells, California taxes the ordinary-income portion “to the extent you performed services in California from the grant date to the exercise date,” and any gain is sourced to your state of residence at the sale; Example 10 gives a 50 percent California share for an employee who did half the work in California and sold after moving to Nevada (FTB Publication 1004, section F, Employee Stock Purchase Plans, Example 10).

Deferred compensation

Nonqualified deferred compensation follows the federal statute covered next. A lump sum or short-schedule payout, to the extent earned in California, remains taxable by California after you move; an installment schedule of at least ten years generally does not (FTB Publication 1005 (2025), Pension and Annuity Guidelines).

What does 4 U.S.C. §114 protect, and what does it leave out?

Federal law bars a state from taxing the retirement income of someone who no longer lives there: “No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State” (4 U.S.C. §114). Its definition covers distributions from qualified plans under section 401(a), which includes 401(k) plans, 403(a) and 403(b) annuities, governmental 457 plans, SEPs, IRAs, military retired pay, and two kinds of nonqualified plan: payments made in “substantially equal periodic payments (not less frequently than annually)” over life or life expectancy or over not less than ten years, and payments after termination from a plan maintained solely to provide benefits above the tax code’s limits. California applies the same list and “does not impose tax on retirement income received by a nonresident after December 31, 1995” (FTB Publication 1005 (2025), Pension and Annuity Guidelines).

Equity compensation is not on the list. RSU vests, option exercises and ESPP ordinary income are wages for services, not retirement-plan distributions, so section 114 does not reach them. Nor does it reach a nonqualified balance paid as a lump sum or over fewer than ten years: lump-sum distributions “derived from a California source, received from most nonqualified plans after December 31, 1995, continue to be taxable by California” (FTB Publication 1031 (2025), Lump-Sum Distributions). The pension and the 401(k) travel cleanly. The equity and the short-schedule deferred compensation carry a California share with them.

Why does moving right before an IPO or tender not reset the clock?

Because the fraction is fixed by workdays already past. An IPO, a tender offer or a lockup release changes when you can sell and what the shares are worth; it does not change where the work that earned them was done. An RSU granted in California and vesting after the IPO carries its California workday share into the vest; an option granted in California and exercised at the IPO carries the grant-to-exercise share. What the move does is shrink the fraction for every future workday and remove California tax on the appreciation after each wage event, which for a stock that rises after the IPO can be the larger number. Neither benefit makes the pre-move share disappear.

This is where employees at companies with a California-to-Texas footprint get surprised, and why the question comes up on our pages for SpaceX employees (Hawthorne to Starbase) and Chevron employees (San Ramon to Houston). A SpaceX holder’s remaining dates are in the SPCX release calendar; each release after a move still carries the California share of the RSU lots that vested into it.

The part-year return

The move year produces a California Form 540NR, the nonresident or part-year resident return. A part-year resident reports all income received while a resident and only California-source income while a nonresident. The tax is not simply California rates on the California slice: you figure taxable income “as if you were a California resident for the entire year,” California computes an effective rate on that total, and the rate is applied to the California-source amount (FTB Publication 1031 (2025), Introduction; Income Taxable by California). A large Texas-sourced vest or post-move gain therefore raises the rate on the California share. Every later year with a California-sourced vest or exercise requires another 540NR.

Withholding surprises

Payroll works from what it has on file. Either the employer never records the move date, withholds California tax on the whole vest and reports all of it as California wages on the W-2, or it records the Texas address, stops California withholding entirely, and reports no California wages on a vest that was two-thirds California-sourced. California requires withholding on nonresident wages for services performed in the state, at a flat 10.23 percent on stock options and bonuses (California EDD, DE 44 Rev. 52 (4-26), Wages Paid to Nonresidents; Supplemental Wages). Neither error changes what you owe; the 540NR is filed on the correct allocation and the withholding is reconciled there. Federal withholding adds a gap of its own: supplemental wages, including RSU vests, are withheld at a flat 22 percent up to $1 million a year and 37 percent above (IRS Publication 15 (2026), section 7, Supplemental Wages), so a household in the 35 or 37 percent bracket owes the difference with the return or through estimated payments, in either state.

A worked example: a four-year RSU grant, moved after two years

The household below is hypothetical, and the share price is held flat only to keep the arithmetic visible; it is not a forecast. An employee at a private California company receives 4,000 RSUs on January 2, 2025, vesting 1,000 units on each January 2 from 2026 through 2029. The employee works every workday in California until January 2, 2027, moves to Texas and establishes residency that day, and works every later workday in Texas with no trips back to the employer’s California site. Assume 250 workdays a year and an illustrative $100 per share at each vest, so each vest is $100,000 of wages. The company goes public in mid-2027, after the move.

Hypothetical illustration. California share = California workdays from grant to vest divided by total workdays from grant to vest, per FTB Publication 1004, section E. Values illustrative only, as of September 2026.

Vest date	California workdays since grant	Total workdays since grant	California share	Wages at vest (illustrative)	California-source wages
Jan 2, 2026 (resident)	250	250	100%	$100,000	$100,000
Jan 2, 2027 (move date)	500	500	100%	$100,000	$100,000
Jan 2, 2028 (Texas, after the IPO)	500	750	66.7%	$100,000	$66,667
Jan 2, 2029 (Texas)	500	1,000	50%	$100,000	$50,000
Grant total	1,750	2,500		$400,000	$316,667 (79%)

The arithmetic: 500 divided by 750 is 0.6667, and 500 divided by 1,000 is 0.5. Across the four vests, $316,667 of the $400,000 grant is California-source, about 79 percent, even though half the vesting calendar falls after the move and the IPO. The 2026 and 2027 vests are taxed as a resident regardless of sourcing, so the allocation first matters on the 2028 vest. On the two Texas-year vests California taxes $116,667 of the $200,000, through 540NR returns for 2028 and 2029, at the effective rate set by the household’s total income in each year. Texas taxes none of it.

Three variations show what the move does and does not change. A refresh grant made in March 2027, after the move, has no California workdays and is never California-source. Ten days of meetings at the California site in 2028 would add ten California workdays to the numerator of every award still vesting, so trips back are worth logging. And if the employee sells the 2028 and 2029 vests in 2030 at a gain, the gain is Texas-source; California’s claim stopped at the vest-date value.

The move checklist

The FTB judges intent by actions and dates, so the file you keep is the case you will make.

• Pick one move date and make the records agree on it: Texas lease or closing date, the mover’s bill of lading, utility start dates, the last day in the California home. Keep a day log for the move year and the year after.
• Tell payroll and the stock plan administrator in writing, with the move date and new work location, and ask how state wages will be allocated on future vests and exercises. Check the first post-move pay stub and the W-2’s California wage figure.
• Texas driver’s license within 90 days. A new resident may drive on an out-of-state license for no more than 90 days after entering the state (Tex. Transp. Code §521.029). Surrender the California license when you do.
• Vehicle registration within 30 days, after an inspection where required and with proof of Texas insurance (Texas DMV, New to Texas).
• Voter registration in your Texas county, and cancel the California registration.
• The California home. Sell it, or rent it on a lease that shows you do not occupy it. A California home you keep using is the fact that undoes most claimed moves. If you sell after moving, the gain on California real estate remains California-source regardless of residency (FTB Publication 1031 (2025), Sale of Real Estate); ask your CPA how the primary-residence exclusion applies to your dates.
• Where the family lives and where the children go to school. Both are listed factors, and Texas school enrollment is dated evidence.
• Move the professional relationships: doctors, dentists, accountants, attorneys, bank accounts, club memberships, and any California professional license you no longer need.
• File the homestead application with your county appraisal district, and update estate documents to Texas.
• Plan the California returns: a 540NR for the move year and for each later year in which a California-sourced vest, exercise or deferred compensation payment lands.

What changes on the Texas side?

No personal income tax, and no capital-gains tax. The Texas Constitution provides that “the legislature may not impose a tax on the net incomes of individuals, including an individual’s share of partnership and unincorporated association income,” added by the voters on November 5, 2019, and since November 4, 2025 it also bars a tax on “the realized or unrealized capital gains of an individual, family, estate, or trust” (Tex. Const. art. VIII, §§24-a, 24-b, 26). The same article, as of the same election, bars a state estate, inheritance or death tax; the federal estate tax still applies. Property tax carries more of the load in Texas, which is where the homestead exemption comes in.

Community property, on arrival. Texas is a community-property state: “Community property consists of the property, other than separate property, acquired by either spouse during marriage,” and property possessed during marriage is presumed community (Tex. Fam. Code §§3.002, 3.003). Equity earned during the marriage while you lived in California was community property under California law, and what you earn after arrival is community under Texas law. “Quasi-community property” is a California concept, property acquired while living outside California that would have been community had the couple been domiciled there (Cal. Fam. Code §125); it concerns couples moving into California, not out of it, though Texas has a divorce-only analogue for property acquired while domiciled elsewhere (Tex. Fam. Code §7.002). How your pre-move holdings are characterized in Texas is a question for a Texas family-law or estate attorney, and worth asking: federal law gives community property a full basis step-up on both halves at the first spouse’s death, where a common-law state generally steps up only the decedent’s half (26 U.S.C. §1014(b)(6)). For a household holding low-basis company stock, titling is not a formality.

The homestead exemption. Texas exempts $140,000 of a residence homestead’s appraised value from school district tax, with a further $60,000 for owners 65 or older or disabled; counties add $3,000, and any taxing unit may adopt a percentage exemption of up to 20 percent (Tex. Tax Code §11.13(a), (b), (c), (n)). A buyer who acquires a home after January 1 may receive the general exemption for the rest of that year immediately on qualifying, if the prior owner did not already have it, and a late application is accepted up to two years after the delinquency date (Tex. Tax Code §§11.42(f), 11.43, 11.431). Apply to the county appraisal district; once allowed, the exemption generally carries forward. The markets where relocating tech households tend to land, Austin, Frisco and Houston among them, each have their own appraisal district and local exemption elections.

No conformity questions. With no personal income tax there is no Texas return, no Texas treatment of ISOs or ESPP dispositions, and no Texas view of the AMT credit. The state tax questions that remain are all California’s, and they run until the last California-era award has been taxed.

How we approach a move in a plan

We start with an equity map: every grant, its date, its vesting or exercise schedule, and the workday history behind it, so the California share of each future event is known before the event. That map is the first output of our work on equity compensation and concentrated stock, and for a mover it doubles as the file that supports the sourcing on each 540NR. From there the plan sequences three calendars against each other: vesting and lockup, residency, and tax. The order of exercise, vest, move and sale decides which state taxes which layer, and for ISO holders whether California taxes the gain at all. We model those orderings with the household’s CPA through our tax planning process and bring the same discipline to planning capital gains after a liquidity event, so the tax plan informs the concentration decision without steering it; our note on when tax planning distorts the portfolio is the corrective. For larger awards, our page on planning for executives and equity compensation covers the deferred compensation and hedging-policy questions beside the state tax ones. We are based in Texas and meet by video with households on both ends of this move.

Questions worth answering before you move

• For each unvested or unexercised award, what is the California workday fraction today, and what will it be at each future vest or exercise?
• Which awards are ISOs, and does the plan involve a qualifying sale as a Texas resident or an exercise in California that triggers California AMT?
• Is any nonqualified deferred compensation paid as a lump sum or over fewer than ten years, and how much of it was earned in California?
• Has payroll been told the move date and work location in writing, and will the W-2 state wages match the workday allocation?
• What is the plan for the California home, and does it survive the closest-connections test?
• How should the Texas home and the company stock be titled, given community property and the step-up at the first death?
• Does federal withholding on the next vest leave a gap that estimated payments should cover?

What this does not mean

None of this is a recommendation to move, to stay, or to sell or hold any security. A move that is right for a household’s work and family carries tax consequences worth knowing in advance; a move made for tax alone tends to fail the closest-connections test for the same reason it was made.

It is also not a residency determination. The FTB will not issue written opinions on whether a particular person is a resident for a particular period, because the question is one of fact (FTB Publication 1031 (2025), Introduction), and neither will we. The rules quoted are current as of September 2026; the FTB’s equity guidance dates from 2015 and its residency guide is the 2025 edition, and either can change. Confirm your dates, awards and returns with a CPA or tax attorney who practices in California residency matters.

Frequently asked questions

If I move to Texas before my company’s IPO, does California still tax my RSUs?

Yes, in proportion to the work done in California. California taxes RSU income at vest to the extent services were performed there from grant to vest, measured by workdays, even when the vest and the IPO come after you leave. Awards granted after the move carry no California share, and the gain on a later sale as a Texas resident is not California-source.

Does the nine-month rule make me a nonresident if I spend less than nine months in California?

No. The nine-month figure is a presumption of residency for anyone who spends more than nine months in California. The regulation states that a person is not a nonresident simply because they spend less time there, and may be a resident without being in the state at all in a given year. Residency turns on the strength of your ties.

Does federal law stop California from taxing my equity after I move?

No. 4 U.S.C. section 114 bars a state from taxing a nonresident’s retirement income: 401(k) and pension distributions, IRAs, and nonqualified deferred compensation paid over life or at least ten years. Equity compensation is wages for services, not retirement income, so the statute does not reach it.

What happens if I exercise ISOs in California and sell after moving to Texas?

If the sale is a qualifying disposition, the gain is Texas-source and California does not tax it, even though the work was done in California. An AMT adjustment for the spread is still required on your California return for the exercise year unless you sold that same year, sourced by California workdays from grant to exercise. A disqualifying disposition instead produces wage income on the spread, sourced to California by those workdays.

Will my employer withhold California tax correctly after I move?

Often not without a prompt. Payroll may keep withholding California tax on the entire vest if it lacks a move date, or stop entirely if it only has the new address. The correct amount is set by the workday allocation and reconciled on Form 540NR either way, so give payroll the move date and work location in writing and check the W-2’s California wages before filing.

Does Texas tax the equity or the gain after I arrive?

No. The Texas Constitution prohibits a tax on the net incomes of individuals and, since 2025, a tax on realized or unrealized capital gains, and there is no Texas personal income tax return. What remains after a move is California’s claim on the California-sourced share of awards earned before you left.

Sources and further reading

• California Franchise Tax Board, Publication 1004, Equity-Based Compensation Guidelines (rev. 01/2015): sections C, D, E, F and summary table
• California Franchise Tax Board, Publication 1031 (2025), Guidelines for Determining Resident Status: residency factors, nine-month presumption, safe harbor, domicile, Form 540NR, wages, pensions, real estate, stocks
• 18 Cal. Code Regs. §17016, presumption of residence
• California Franchise Tax Board, Publication 1005 (2025), Pension and Annuity Guidelines: retirement income of nonresidents
• 4 U.S.C. §114, limitation on state income taxation of certain pension income
• Cal. Rev. & Tax. Code §17062, alternative minimum tax
• California Employment Development Department, DE 44 Rev. 52 (4-26), California Employer's Guide: wages paid to nonresidents; supplemental wage withholding rates
• IRS Publication 15 (2026), section 7, supplemental wages
• Texas Constitution, Article VIII, §§24-a, 24-b, 26
• Texas Tax Code §§11.13, 11.42, 11.43, 11.431, residence homestead exemption
• Texas Family Code §§3.002, 3.003, community property
• Texas Family Code §7.002, property acquired while domiciled in another state
• California Family Code §125, quasi-community property
• 26 U.S.C. §1014(b)(6), basis of community property at death
• Texas Transportation Code §521.029, new residents
• Texas Department of Motor Vehicles, New to Texas

Next steps

• IPO lockup expiration: what employees can do before release →
• Planning for executives and equity compensation →
• Equity compensation and concentrated stock →

Keep reading

Equity Compensation · 13 min readPre-IPO Stock Options: ISOs vs NSOsEquity Compensation · 12 min readQSBS and California: The Exclusion California Doesn't FollowEquity Compensation · 17 min readIPO Lockup Expiration: What to Do Before Release

Get the weekly market brief.

Once a week, we send a concise roundup of the most important market stories and what they may mean for financial markets, portfolio decisions, and planning strategy.

First Name Last Name

Email * Subscribe

The views and opinions expressed here are those of The Financial Sciences Company as of the publish date and are provided for informational and educational purposes only. They are not personalized investment, tax, or legal advice. The Financial Sciences Company, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. Additional information is available in our Form ADV at adviserinfo.sec.gov.

General educational information, current as of 2026. Figures and rules change. For guidance specific to your situation, speak with a qualified professional.