Restricted Stock Units (RSUs) stand apart from wages as they reflect your contribution over an extended timeframe, spanning from the offer date to the vesting date. This distinction becomes particularly noteworthy when you’ve transitioned between states or even countries during this period, necessitating a proportional allocation of income to the respective tax authorities.

Take, for instance, a scenario that commenced on January 1, 2022. You were awarded RSUs while residing in Massachusetts (MA), but by the year’s end, you relocated to a California (CA) office. Fast forward to July 1, 2023, you vest in part of the promised shares, valued at $30,000. This payment not only represents your efforts over the past year and a half but also necessitates income allocation between MA and CA due to your residence change, $20,000 attributed to MA for the year spent there and the remaining $10,000 as income in CA.

However, the complexity arises upon receiving the RSUs as a California resident, where the entire $30,000 is recognized as California income. Nevertheless, you are eligible for a credit for the $20,000 taxed by MA.

This example merely scratches the surface. The reality involves diverse RSU streams with varying offer and vest dates, requiring meticulous paycheck reviews to identify doubly taxed income and secure credits accordingly. This principle also applies to international relocations, such as Google employees moving to Canada or the United Kingdom after not securing an H1-B visa.

To navigate this complex process, I developed a spreadsheet that precisely allocates RSU income across jurisdictions. In one case, I calculated the U.S. and Canada allocation for multiple RSU streams for a Google employee who relocated to Canada, confirming her W-2 accurately reflected the U.S. portion subject to both U.S. income tax and California state tax as a nonresident.

Company practices in handling these allocations vary, especially if residency changes are not communicated. During the COVID-19 pandemic, numerous individuals found their residency unintentionally altered, often extending stays abroad beyond initial plans. I’ve assisted in reallocating U.S. and foreign income for RSU holders in such predicaments. As the income earned outside the U.S. is exempt from U.S. income tax, it provides the only silver lining amidst the pandemic’s dark clouds.