RSU tax in California: What you need to know

A restricted stock unit (RSU) is a type of employee compensation or benefits paid in company shares, but you won’t reap the rewards right away. Instead, the shares only become yours after a ‘vesting’ period, at which point you can sell, reinvest, or keep holding them.¹

RSUs are generally taxed when they vest, not when they are granted. How much tax you owe depends not just on your income, but also on where you lived and worked during the vesting period - a key consideration for internationally mobile employees.

This comprehensive guide breaks down how RSUs are taxed in California, from how much you can expect to owe the tax collector, to what happens when you move out of state before your RSUs vest.

We’ll also show you a solution for selling your RSUs in a different currency - the Wise account. It lets you hold and convert between 40+ currencies including United States dollars, for low fees* and mid-market exchange rates. Plus, you’ll get dedicated support and volume discounts when sending large amounts.

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How are RSUs taxed in California?

You typically do not pay tax when RSUs are granted, because you don’t yet own the shares. Taxation occurs when the RSUs vest, meaning the shares officially become yours.

At vesting, the fair market value of the shares is treated as ordinary employment income. This income is subject to federal and California state taxes, as well as payroll taxes.

After vesting, any increase in share value is taxed as a capital gain when you sell the shares. At the federal level, the rate depends on how long you hold the shares after vesting, but California taxes capital gains at the same rate regardless of timing.

RSU tax at vesting in California

At vesting, RSUs are treated like a cash bonus. The taxable amount is simply the market value of the shares on the vesting date.

It’s important to note: this income is subject to both federal income tax and California state income tax. California doesn’t offer preferential treatment for RSUs.

RSU tax withholding in California is generally set at 10.24%, though top earners pulling in over a million USD per year will pay 13.3%.²

RSUs are also subject to payroll taxes. Employers typically withhold Social Security (6.2% up to the annual wage limit) and Medicare (1.45% on all income, plus an additional 0.9% for high earners).³

Because no cash changes hands when RSUs vest, companies often rely on a withholding mechanism to cover taxes. The most common approach is “sell to cover”, where a portion of vested shares is automatically sold off in order to pay taxes. Alternatively, some employers simply withhold shares directly.

For example, if your RSUs vest while you are working in California, the value is added to your W-2 income for the year (the US equivalent of a P60 or an annual payslip).

The following chart breaks down the tax you can expect to pay on RSUs at a federal level, as of 2026:

RSU tax when you sell shares in California⁴

Once your RSUs have vested and become real stock, you might want to consider selling them. But once you do, they’ll be subject to a capital gains tax.

For example, if your RSUs vest at $100 per share and you sell later at $120, your taxable capital gain is $20 per share.

But unlike with RSU taxation in the UK and many other countries, the timing of when you sell your shares matters.

• Federal short-term vs long-term: If you sell within one year of vesting, gains are short-term and taxed at ordinary income rates. If you sell after one year, gains are long-term and taxed at preferential federal rates.

• California: All gains are taxed at regular state income tax rates, regardless of how long you hold the shares. Rates range from 1% to 13.3%, depending on your income.

If you are a California resident at the time of sale, the full gain is taxable by California. Non-residents generally pay tax on capital gains to the state where they currently live.

Special considerations for international employees

RSUs can become especially complicated for employees who move countries or states, because California taxes them based on where the work was performed, not just where you live when the shares vest.

Moving before or after vesting

If you move out of California before RSUs vest, the state may still tax the portion of income earned while you worked there.⁵

Conversely, if you move into California partway through a vesting schedule, only the days worked in California typically count toward taxable income. This can result in split taxation, with multiple jurisdictions claiming taxing rights.

Let’s say you worked in the Golden State for two years of a five-year vesting schedule: roughly two-fifths of the RSU value at vesting could be treated as California-sourced income, while the remaining portion is typically taxed by your new state or country of residence.

Working remotely for an out-of-state or overseas employer

Physically working in California, even for a foreign employer, can make RSUs California-source income.

If you perform the work outside California, the state generally cannot claim taxation, even if the employer is headquartered there.

Currency conversion (non-tax)

If you sell shares or receive RSU proceeds in dollars and want to convert them into pounds (or vice versa), currency conversion costs may affect your overall returns. Some providers may apply exchange rates that differ from the mid-market rate and include FX margins, which can increase the total cost - in some cases by around 2-3% of the amount, particularly on larger sums.

Use Wise to save on unnecessary currency fees on your next share or RSU payout

After reading this, you should have a better idea of how tax on RSUs works in California - and how the tax laws apply to you.

It’s also important to think about the best way to manage share profits, dividends and other investment income. This is particularly crucial for those with global investments, where you’re earning returns in multiple currencies.

Wise is a great solution, helping you manage your money in 40+ currencies including United States dollars (USD) and convert between them whenever you need to.

Thanks to its low fees* and mid-market exchange rates, you could save on currency conversion fees. For an example of how it could benefit you, check out this guide to using Wise for RSU payouts in USD.

You can even get Wise account details in USD, so you can receive USD payments without paying any fees. Ready to make new global investments? It’s easy to fund your portfolio using your Wise account - which lets you securely send money worldwide in just a few clicks.

FAQs: RSU tax in California

When are RSUs taxed in California?

RSUs are taxed when they vest. At vesting, the market value of the shares is treated as ordinary income and is subject to federal income tax, California state income tax, and payroll taxes.

How much tax do I pay when RSUs vest?

The income is taxed at your marginal tax rates. That can mean federal tax plus state tax of up to 13.3%, making RSUs one of the most heavily taxed forms of compensation.

Does California tax RSUs if I move away before they vest?⁶

Most of the time, yes. California can tax the portion of RSU income that corresponds to the time you worked in California during the vesting period, even if you are no longer living there when the shares vest.

What happens tax-wise when I sell the shares?

Any gain after vesting is taxed as capital gains. If you sell shares within a year, it’s considered short-term capital gains and is taxed like income. After one year, this is considered a long-term capital gain, taxed at lower federal rates, though California taxes all gains as ordinary income.

Does California have a special RSU tax rate?

Unfortunately not - California doesn’t treat RSUs separately. They are taxed as regular wage income at vesting and as investment income when sold, with no preferential state tax treatment.

Sources used:

Sources last checked on date: 12 February 2026