Why Is My RSU Taxed at 40%?

Your RSU isn't being taxed at a single flat rate - it's the combined effect of multiple taxes layered together. Federal income tax (up to 37%), California state income tax (up to 13.3%), Medicare (2.35% for high earners), and SDI (0.9%) can push the combined rate well above 40%. The 22% federal withholding often creates the illusion that you're being taxed at a lower rate, until you file your return and owe the difference.

Are RSUs Taxed in California After Leaving?

Yes. California uses a sourcing allocation based on where you worked during the vesting period. If you were a California resident or worked in California for any part of your RSU vesting schedule, the state can claim a proportional share of the tax - even years after you've moved.

How Much Tax Do I Pay on Stock Gains in California?

California taxes all stock gains - both short-term and long-term - as ordinary income. Depending on your income level, this means stock gains can be taxed at up to 13.3% at the state level, on top of federal capital gains rates of 0%, 15%, or 20%.

How Much Will I Be Taxed on My RSUs?

The total tax on your RSUs depends on your income, filing status, and state of residence. For a California resident earning above $500,000, the combined federal and state tax on RSU vesting income can range from 45% to over 52%. The exact rate depends on which tax brackets your RSU income falls into.

Can I Avoid RSU Taxes by Moving Out of California?

Not entirely. While moving to a state with no income tax (like Texas or Washington) eliminates future state tax on income earned there, California can still tax the portion of RSU income attributable to work performed in California during the vesting period. Clean relocation planning and documenting your departure with the FTB are essential.

RSU Tax in California: What Married Founders Need to Know in 2026

If you're a tech founder or executive in California with RSUs, you already know the paycheck looks different from what you expected. Between federal taxes, California's top state income tax rate, and payroll deductions, your RSU income can shrink fast - sometimes by more than half. California has the highest state income tax rate in the country at 13.3%. When you layer that on top of federal rates, Medicare, and state disability insurance, your RSU tax in California can push past 50% on every dollar earned. And the real problem? Your employer probably isn't withholding enough to cover it. This guide breaks down exactly how RSUs are taxed in California, what married founders need to plan for, and what steps you can take now to avoid a surprise tax bill later. At Neptune, we see this come up constantly with the couples we work with. Tech founders and professionals earning significant RSU income need structured conversations about how equity compensation fits into their long-term financial and marital planning. That is exactly what Neptune facilitates - guided preparation that helps couples align on money, taxes, and planning before anything gets drafted by attorneys.

How RSU Tax in California Actually Works

RSUs - restricted stock units - are taxed at two distinct moments: when they vest and when you sell.

At vesting, the fair market value of your shares on the vest date is treated as ordinary income. It shows up on your W-2 just like your salary. California taxes this income at your marginal state rate, and the IRS taxes it at your federal rate.

At sale, you may owe additional capital gains tax on any increase in value between the vest date and the sale date. Here's a critical detail most people miss: California does not offer a lower rate for long-term capital gains. The state taxes all gains - short-term and long-term - as ordinary income.

So if your RSUs vest at $100 per share and you sell at $140, that $40 gain per share is taxed at your full California income tax rate, not the reduced federal long-term capital gains rate.

What Is the RSU Tax Rate in California for 2026?

The combined marginal RSU tax rate in California depends on your total income, but here's a realistic breakdown for a high-earning tech professional:

Federal income tax: Up to 37% (for income above approximately $609,350 for single filers in 2026). The 35% bracket starts at $256,225 for single filers and $512,450 for married filing jointly, per IRS Revenue Procedure 2025-32.

California state income tax: Up to 13.3% (12.3% base rate plus the 1% Mental Health Services Tax on income exceeding $1 million).

Medicare tax: 1.45%, plus an additional 0.9% surtax on earnings above $200,000 for single filers ($250,000 for married filing jointly).

California State Disability Insurance (SDI): 0.9% on all income, with no wage cap since 2024.

Social Security: 6.2%, capped at $176,100 in 2026.

When you add it all up, a California tech founder earning above $1 million in combined salary and RSU income can face an effective marginal RSU tax rate exceeding 52%.

The RSU Withholding Gap: Why You Owe More Than Expected

This is where most people get caught off guard.

Your employer withholds taxes on RSU income at flat supplemental rates. The federal supplemental withholding rate is 22% on the first $1 million and 37% above that. California withholds at a flat 10.23%.

But if your actual marginal tax rate is 35% federal and 13.3% state, the math doesn't add up. On $400,000 of RSU income, you could be under-withheld by approximately $56,000. That's a significant bill waiting for you at tax time.

This gap is the single biggest reason California RSU holders face unexpected tax bills in April.

How RSU Tax Planning Changes When You're Married

Marriage adds another layer of complexity to RSU tax planning in California - especially for founders.

Filing status matters. Married couples filing jointly may benefit from wider tax brackets. For 2026, the 35% federal bracket doesn't kick in until $512,450 for joint filers versus $256,225 for single filers. But if both spouses have high incomes, the benefit narrows or disappears.

Community property rules apply. California is a community property state, which means RSUs earned during the marriage are generally considered shared marital assets - even if only one spouse's name is on the grant. This has significant implications for estate planning for married couples and for how assets are divided if the relationship changes.

Prenuptial agreements can protect clarity. For founders receiving significant RSU grants before or during marriage, having structured conversations about equity compensation early is important. Neptune helps couples work through these discussions - including how stock compensation, vesting schedules, and future liquidity events fit into long-term financial planning. Learn more about how Neptune's guided preparation process works.

Are RSUs Taxed in California After You Leave the State?

Yes - and this catches many people off guard.

California uses an allocation method for RSU taxation. If you were granted RSUs while working in California but moved to another state before they vested, California can still tax a portion of that RSU income. The state calculates the percentage of the vesting period you spent working in California and taxes that share.

For example, if your RSUs had a four-year vesting schedule and you worked in California for three of those four years, California can tax 75% of each vest - even if you're living in Texas or Washington on the vest date.

The California Franchise Tax Board (FTB) Publication 1004 outlines the state's rules on sourcing income for former residents. If you've recently relocated or plan to, understanding these allocation rules is essential to avoid double taxation.

For couples navigating a move out of California while holding significant RSU grants, Neptune's guided preparation process helps both partners understand how relocation timing, vesting schedules, and state tax obligations fit into their broader financial picture. This kind of structured alignment is especially valuable when one partner holds equity and the other does not, or when both partners hold RSUs vesting on different timelines. Neptune does not provide tax or legal advice, but it helps couples have the right conversations before those decisions are finalised.

6 Strategies to Reduce Your RSU Tax Burden in California

There's no way to eliminate RSU taxes entirely, but thoughtful planning can reduce the impact.

Adjust your W-4 withholding. Request additional withholding from your employer to match your actual marginal rate. This avoids a large April tax bill and potential underpayment penalties.
Make quarterly estimated tax payments. If your RSU income is significant, estimated payments to both the IRS and the California FTB can keep you current throughout the year.
Consider your filing status carefully. For married couples, the difference between filing jointly and separately can shift your effective RSU tax rate by several percentage points. Work with a tax professional to model both scenarios.
Use tax-loss harvesting. If you hold other investments with unrealized losses, selling those positions strategically can offset gains from RSU sales.
Plan the timing of RSU sales. If you hold vested shares beyond one year, the federal capital gains rate drops to 15% or 20% - though California still taxes the gain as ordinary income. The federal savings alone can be meaningful.
Coordinate with estate and trust planning. For founders with significant equity, trusts can play a role in long-term tax efficiency and wealth transfer. Understanding how trusts are taxed is a smart starting point.