Texas Taxes on RSUs and Stock Options: A Tech Employee's Guide

Austin is now one of the top U.S. tech hubs — Tesla, Oracle, Apple, Dell, and thousands of funded startups have built or expanded operations there. Dallas, Houston, and the broader Texas corridor attract a fast-growing population of tech workers, many relocating from California or New York specifically for the tax environment. The math is compelling: Texas has no state income tax on RSU vests, stock option exercises, wages, or capital gains. A senior engineer vesting $400K of RSUs in Texas pays zero state income tax on that income — compared to roughly $36,000–$53,000 in California state tax on the same vest.

The picture is not entirely simple. California's nonresident sourcing rules follow you when you move — existing RSU grants continue to generate California-taxable income proportional to how long you worked there during the vesting period. Property taxes in Texas are high and partially offset the income-tax savings. And establishing genuine Texas domicile requires deliberate steps that high-tax states will scrutinize.

This guide covers how Texas taxes RSUs, ISOs, NSOs, and ESPP — and what native and relocated Texas tech workers need to know before making equity decisions.

Texas's tax structure for tech employees

RSUs in Texas: federal-only at vest

At vest: no state withholding

When RSUs vest, the fair market value at vest date is ordinary income — taxed by the IRS at your marginal rate. Federal income tax is withheld at the 22% supplemental rate (which underwithholds for most tech employees above $190K total income, since higher brackets run to 32% and 37%). Social Security applies on the first $176,100 of combined wages and RSU income; Medicare at 1.45% on all compensation; Additional Medicare Tax at 0.9% on income above $200K single / $250K MFJ.

Texas adds nothing on top of this. No state income tax, no supplemental state withholding. Use the RSU after-tax calculator and enter $0 for state income tax — that's the correct number for Texas residents.

After vest: capital gains are federal-only

Your cost basis in the vested shares equals FMV at vest. If you hold the shares and they appreciate, selling after 12+ months qualifies the gain for federal long-term capital gains rates (15% or 20% depending on income, plus 3.8% NIIT). Texas taxes none of this — neither short-term nor long-term gains.

This is a structural advantage over California (which taxes LTCG at full ordinary income rates up to 13.3%) and over Washington's Capital Gains Income Tax (7% on net LTCG above a threshold, 9.9% above $1M per ESSB 5813 — see the Washington equity tax guide for details).⁴ For Texas residents, the decision to hold RSU shares for LTCG treatment is a purely federal question: comparing 37% now (ordinary income at vest) vs. 20% + 3.8% NIIT later (at sale, after one year). That's real savings on the appreciation — but don't let the tax tail drive decisions about concentration risk. See the concentrated stock guide for the full framework.

ISOs in Texas: no state AMT

Exercise with only federal AMT exposure

Incentive Stock Options create an AMT preference item at exercise: the spread (FMV minus strike price) is not taxable for regular federal income tax purposes, but it is included in Alternative Minimum Tax income. The 2026 federal AMT exemption is $90,100 (single) and $140,200 (MFJ), with the phaseout starting at $500,000 (single) / $1,000,000 (MFJ) at a 50 cent reduction per dollar above the threshold — per IRS Rev. Proc. 2025-32 and modified by OBBBA.⁵

California layers its own 7% state AMT on top of this. Texas does not. Texas residents exercising ISOs face federal AMT only — the calculation is simpler and the maximum total AMT exposure is meaningfully lower. Use the ISO AMT calculator to compute your exact federal AMT for a given exercise, and know that Texas adds nothing to that number.

Qualifying disposition: California's ghost

If you hold exercised ISOs long enough to meet the federal holding period (2 years from grant, 1 year from exercise), the eventual gain is taxed at federal long-term capital gains rates — not ordinary income. Texas imposes no tax on this gain regardless of holding period. But if you exercised while living in California, California likely claims a portion of the gain based on when services were performed to earn the grant. This is covered in detail in the California long-arm section below.

Disqualifying disposition

If you sell before meeting the qualifying disposition thresholds, the spread at exercise becomes ordinary income federally — and $0 at the Texas level. Any additional appreciation above the exercise-day FMV is a short-term capital gain: ordinary income federally, $0 in Texas.

NSOs in Texas

Non-qualified stock options are taxed at exercise: the spread is ordinary income to the IRS, plus Social Security and Medicare on the earned-income portion. Texas imposes $0 state income tax on this. Post-exercise appreciation held over one year is a federal long-term capital gain (15–20% + NIIT) with $0 added by Texas. The key NSO questions in Texas are the same as anywhere: is the company worth holding after the tax event, and if the company is private, what's the liquidity timeline?

ESPP in Texas

§423 ESPP plans in Texas follow federal structure — the ordinary income components (15% discount, look-back benefit) are taxed federally at your marginal rate, with $0 added by Texas. For disqualifying dispositions (selling within 1 year from purchase or 2 years from offering start), the gain is ordinary income federally and $0 in Texas. For qualifying dispositions, the discount component is ordinary income federally, and post-purchase appreciation is federal LTCG — $0 in Texas. See the ESPP calculator to model after-tax proceeds; for Texas residents, the state income tax field is $0.

The California long-arm problem (critical for CA → TX relocators)

This is the most important section for the large population of tech workers who moved from California to Texas. California does not simply release its tax claim when you change your driver's license.

How California sources RSU income after you move

California allocates RSU income based on a grant-to-vest workday formula: California workdays during the vesting period ÷ total workdays during the vesting period = California's share of each vest event.⁶ This is documented in the California FTB's Residency and Sourcing Technical Manual (rev. January 2026).

The California claim shrinks over time as new grants are made after your move (those have no California component, assuming genuine Texas domicile). But for grants received during your California tenure, California follows each vest until the grant-to-vest period ends:

• Grants received before your move: California sources proportionally on every vest event, using the exact days you worked in California from the grant date. A 4-year grant received 3 years before your move will still have 75% California allocation on every tranche that vests — even years after you've relocated.
• New grants received after your move: No California component, assuming genuine Texas domicile and no California workdays. This is the major long-term benefit of moving — future grants are fully outside California's reach.
• Year of the move: File a California part-year resident return (Form 540) for the year you moved, reflecting the exact move date. In subsequent years, file as a California nonresident (Form 540NR) to report CA-sourced equity income from pre-move grants.

Establishing genuine Texas domicile

California's Franchise Tax Board audits high-income relocations aggressively — particularly when the tax savings are large. To support a domicile change, you need contemporaneous documentation showing Texas is your permanent home:⁶

• Obtain a Texas driver's license and surrender your California license (within 30 days of establishing Texas residence).
• Register to vote in Texas and deregister in California.
• Register your vehicles in Texas.
• File a California part-year resident return (Form 540) for the year of your move, clearly reflecting the move-out date — this is your audit trail.
• Change your mailing address with the IRS, employer, brokerages, and financial institutions.
• Minimize California workdays after the move — every day you work from California (visiting the office, attending on-site meetings) is counted in the allocation and signals ongoing California ties to the FTB.
• If you retain a California property: convert it to a rental or sell it. Maintaining a California home you could return to weakens the domicile argument substantially.

The FTB standard is the "closer connection" test: you must be more connected to Texas than to California as of the date of your claimed move. If your family remains in California for months after you supposedly moved, or you keep driving a California-registered car, the FTB may assert you remained a California resident longer than you claimed.

Property taxes: the real trade-off

Texas funds its government primarily through property taxes — a deliberate structural choice that accompanies the no-income-tax environment. For tech workers buying homes in major Texas metro areas, the property tax burden is meaningfully higher than in California or Washington.

The $100K homestead exemption (established by the 2023 Texas constitutional amendment) and the 10% annual assessment cap help — but the effective property tax burden in Austin is roughly double what Bay Area homeowners pay on the same market value.³ At high comp levels, the income-tax savings dominate: a tech worker vesting $400K/year saves far more from the 0% state income tax than they pay in incremental property taxes. But property tax is a real ongoing cost and should be explicitly modeled in any housing decision. See the rent vs buy calculator for a full model including the SALT cap dynamics.

On the SALT deduction: the 2026 SALT cap is $40,400 (raised from $10K by OBBBA, with phaseout above $500K MAGI). In Texas, your SALT deduction is almost entirely property taxes — there's no state income tax to compete for that $40,400 cap. In California, state income tax alone exhausts the SALT cap, leaving nothing for property tax deductions. This is a modest but real federal benefit for Texas homeowners vs. California homeowners at the same income level.

Estate planning in Texas: clean slate under OBBBA

Texas has no state estate or inheritance tax. The OBBBA permanently set the federal estate exemption at $15M per person ($30M per couple, with inflation adjustment going forward).² Tech employees with $5–10M in total wealth — achievable after a decade at a large tech company or a successful startup outcome — are likely below the federal threshold. Senior ICs and executives can hold appreciated stock, max out annual gifts ($19K per recipient in 2026), and use the full $15M exemption for larger wealth transfers without worrying about state-level estate tax in Texas.

Planning strategies for Texas tech employees

1. Maximize retirement accounts to reduce federal taxable income

With no state income tax to additionally save on contributions, the value of 401(k) and HSA contributions is purely federal. Maxing a 401(k) at $24,500 (2026) at a 37% marginal rate saves $9,065 in federal tax. Mega Backdoor Roth (up to the $72,000 total 415(c) limit in 2026) compounds tax-free growth over decades. Use the Mega Backdoor Roth calculator for your specific contribution space.

2. Hold appreciated shares for LTCG — the calculus is cleaner in Texas

In California, holding RSU shares post-vest saves nothing at the state level — California taxes LTCG as ordinary income either way. In Texas, the state-level comparison is the same (0% either way), but the federal trade-off — 37% ordinary income now vs. 20% + 3.8% NIIT later — applies cleanly. Holding for LTCG treatment is worth modeling if you have a diversified enough portfolio to tolerate the concentration risk. Use the FIRE calculator to see how the compounding difference in after-tax returns affects your FI timeline.

3. Donate appreciated stock to eliminate federal LTCG entirely

Even without California's 13.3% rate, the federal LTCG + NIIT on a large appreciated position is 23.8% — worth eliminating if you have charitable giving intent. Donating appreciated employer stock directly to a donor-advised fund (DAF) avoids realizing the gain entirely. You get the charitable deduction at full FMV, pay no capital gains, and the DAF distributes to your chosen charities over time. See the concentrated stock guide for how DAFs, exchange funds, and systematic selling compare.

4. Time new grants around your move date

New RSU grants received after you establish Texas domicile have no California component — the entire future vest is outside California's reach. Grants received before your move will continue generating CA-sourced income until each grant's vesting period ends. If your company grants equity on a regular cycle, moving before a major grant cycle resets your future tax exposure. Model your specific grant schedule with an advisor to understand the exact break-even timeline.

5. Track California workdays carefully after relocating

Every day you physically work in California after your move is a California workday — counted in the allocation for your pre-move RSU grants, and potentially signaling to the FTB that you haven't fully severed California ties. Keep a calendar log of work location (hotel receipts, airport records, Slack/calendar timestamps). This is especially important in years with large vest events, where the California allocation is material. Even one California-workday month in a 48-month grant period translates to roughly 2% of the grant income sourced to California.

What a fee-only advisor can help you model

• Your grant-by-grant California allocation after the move — exactly how much CA income you'll still owe on existing RSU and option grants, and when each grant's California claim expires
• The year-by-year tax trajectory of a California-to-Texas move, including part-year return complexity, nonresident filing obligations, and the payoff timeline
• Whether your specific facts support a genuine domicile change in the year you plan to move — or whether the FTB has basis to argue you remained a California resident longer
• Capital gains optimization: hold vs. sell vs. donate for each RSU tranche, modeled with your federal rates and concentration risk tolerance
• ISO exercise timing given federal AMT — and how the Texas no-state-AMT environment compares to California for your specific spread size
• Estate and gift planning: using the $15M OBBBA exemption, annual exclusion gifts ($19K/recipient in 2026), and 529 superfunding with RSU vest proceeds