State Income Tax Guide: Rates, Brackets & How States Tax Equity Compensation

State income taxes can add 0% to 13.3% on top of your federal bill. For equity compensation -- RSUs, ISOs, stock options -- the state you live in can mean tens of thousands of dollars in tax difference on the exact same grant.

A California tech employee with $200K in RSU vesting income faces roughly $20K in state taxes. The same employee in Texas? $0 in state income tax. This guide breaks down the full state tax landscape so you can understand exactly what your state takes -- and how to plan around it.

State Income Tax Overview

The U.S. state income tax landscape is a patchwork. Nine states impose no income tax at all, while the highest-tax states take over 13% of your top dollars. Most states use progressive bracket systems similar to the federal structure, though a handful use flat rates.

For tech employees with equity compensation, the state tax question is especially important because RSU vesting income, ISO exercises, and stock option gains are all subject to state tax -- and the amounts involved are often large enough to push you into the highest state brackets.

Here are three facts that catch many employees off guard:

1. Supplemental withholding rates vary wildly. Your employer withholds state tax on RSU vesting at a flat "supplemental" rate that often doesn't match your actual marginal rate -- creating a shortfall or overpayment.
2. States treat ISOs differently. California taxes ISO exercises as ordinary income, while most other states follow the federal treatment (AMT only).
3. Capital gains treatment varies. Some states tax capital gains at preferential rates, others tax them as ordinary income, and Washington has a standalone capital gains tax.

Key State Tax Rates for Equity Compensation

The table below covers the four states our calculator supports in detail, plus a summary of all other states by category.

States We Cover: Detailed Comparison

These four states have the most tech employees with equity compensation. All rates below are verified against official state tax authority publications and match the constants in our RSU Calculator.

No Income Tax States (9 States)

Nine states impose no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

• New Hampshire became fully tax-free in 2025 (previously taxed interest and dividends)
• Washington imposes a 7% capital gains tax on gains exceeding $270,000 -- see our Washington guide
• All other no-tax states have zero state tax on all income types including RSU vesting, ISO exercises, and stock sales

Flat Rate States

Several states use a single flat tax rate on all income. This simplifies equity tax planning because the supplemental withholding rate typically matches the marginal rate (no withholding gap). States with flat rates include Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, North Carolina, Pennsylvania, and Utah. Rates range from roughly 3% to 5%.

Progressive Rate States

The remaining states use progressive bracket systems similar to the federal structure. States with the highest top rates include Hawaii (11%), New Jersey (10.75%), Oregon (9.9%), Minnesota (9.85%), and the District of Columbia (10.75%).

For equity compensation planning in these states, the key questions are: (1) what is the supplemental withholding rate vs. your actual marginal rate, (2) does the state conform to federal ISO treatment, and (3) how does the state treat capital gains. Most progressive states follow federal ISO treatment and tax capital gains as ordinary income.

Why State Tax Matters for Equity Compensation

State taxes interact with equity compensation in three ways that most employees don't anticipate:

1. RSUs Are Taxed as Ordinary Income at Vesting

When your RSUs vest, the full fair market value counts as W-2 income for both federal and state purposes. Your employer withholds state tax at the supplemental rate, but your actual marginal rate may be higher -- creating a state-level withholding shortfall on top of the federal one.

For example, a California employee in the 12.3% bracket who has $150K in RSU vesting income gets only 10.23% withheld by the employer. That's a $3,105 state shortfall on that single vest event.

2. Supplemental Rates Often Don't Match Marginal Rates

Every state with income tax sets a "supplemental withholding rate" -- a flat rate employers use for non-salary compensation like RSU vesting, bonuses, and stock option exercises. These rates are set by state tax authorities and only approximate your real tax burden.

In New York, the supplemental rate is 11.70%, but most tech workers fall in the 6.85% marginal bracket -- meaning NY actually over-withholds on RSU vesting for many employees. The reverse happens in California for high earners.

3. ISOs Get Different Treatment by State

At the federal level, ISO exercises are only subject to AMT -- not ordinary income tax. But not every state follows this treatment:

New York, Texas, Washington, and most other states conform to the federal ISO treatment, so ISO exercises in those states are not subject to state ordinary income tax.

No Income Tax States: The Equity Advantage

Nine states impose no income tax: Alaska, Florida, Nevada, New Hampshire (dividends/interest only), South Dakota, Tennessee, Texas, Washington, and Wyoming.

For tech employees with significant equity compensation, living in a no-tax state provides a straightforward advantage: every dollar of RSU vesting income, ISO exercise gain, or stock option profit escapes state taxation entirely. On a $300K equity event, that's $30K-$40K in savings versus California.

But "no state tax" doesn't mean "no tax planning." You still face the same federal withholding shortfall (22% withheld vs. 32-37% actual rate), estimated tax payment requirements, and AMT considerations on ISO exercises.

For detailed guides on no-tax states popular with tech workers:

• Texas Income Tax Guide -- Austin's booming tech scene with zero state income tax
• Washington Income Tax Guide -- Home to Amazon, Microsoft, and Meta, but watch the new capital gains tax

High-Tax States: Where Planning Matters Most

California and New York dominate tech employment -- and they're also two of the highest-tax states in the country. If you work in either state, equity tax planning isn't optional; it's essential.

California's 13.3% top rate (including the Mental Health Services Tax) combined with its non-conformity to federal ISO treatment makes it the most complex state for equity compensation. New York's 10.9% top rate plus potential NYC taxes of 3.078-3.876% can push combined state/local rates above 14%.

For detailed guides:

• California Income Tax Guide -- 13.3% top rate, Mental Health Tax, state AMT, and unique ISO treatment
• New York Income Tax Guide -- 10.9% top rate, NYC tax, no inflation indexing on brackets

State Tax Detailed Guides

We've published in-depth guides for the four states most relevant to tech employees with equity compensation:

• California Income Tax Guide -- 13.3% top rate, Mental Health Services Tax (1% over $1M), state AMT (7%), and the critical difference in ISO treatment. CA taxes ISO exercises as ordinary income.
• New York Income Tax Guide -- 10.9% top rate, NYC income tax adds 3.078-3.876%, brackets are NOT indexed for inflation, and the 11.70% supplemental rate often over-withholds.
• Texas Income Tax Guide -- No state income tax. Save 10-13% versus CA/NY on every RSU vest. Federal planning still essential.
• Washington Income Tax Guide -- No income tax, but the new 7% capital gains tax applies to stock sales over $270K. Critical for Amazon and Microsoft employees holding large positions.

How to Calculate Your State Tax on RSUs

Here's the step-by-step process to figure out your state tax on RSU vesting income:

Step 1: Start with total W-2 income. Add your base salary plus the total fair market value of all RSUs that vested during the year. This is your gross state income.

Step 2: Apply your state's standard deduction. California allows $5,706 (single) or $11,412 (MFJ). New York allows $8,000 (single) or $16,050 (MFJ). No-tax states skip this step entirely.

Step 3: Apply progressive state brackets. Calculate your state tax on the total taxable income using your state's bracket schedule. This gives you your total state tax liability.

Step 4: Compare to employer withholding. Your employer withheld state tax on your RSU vesting at the supplemental rate (e.g., 10.23% in CA, 11.70% in NY). Multiply the RSU vesting value by this rate to see what was withheld.

Step 5: Calculate the difference. If your actual state tax on the RSU income exceeds what was withheld, you owe the difference. If the supplemental rate over-withheld (common in NY), you'll get a refund.

Our RSU Calculator handles this automatically for California, New York, Washington, and Texas -- including the state-level withholding shortfall calculation.

State Tax Impact on a $100K RSU Vest

How much does state tax cost you on the same equity event? Here's a side-by-side comparison using a $200K salary + $100K RSU vest, single filer:

California's supplemental rate (10.23%) is close to the actual marginal rate at this income level, but under-withholds at higher incomes. New York's 11.70% supplemental rate dramatically over-withholds -- you'll get nearly $5,000 back at filing time. Both no-tax states result in zero state withholding and zero state liability.

Part-Year Resident Rules for Equity Compensation

If you move states mid-year -- say, from California to Texas -- your equity income gets split between the two states. This is one of the most complex areas of state taxation, and it trips up many tech employees who relocate.

How RSU income is allocated between states:

Most states allocate W-2 income (including RSU vesting) based on the number of work-days in each state during the year. If you worked 200 days total and 120 of those were in California before your move, California claims 60% of your RSU vesting income for the year.

Key rules that catch people off guard:

1. California's sourcing rules are aggressive. CA can tax equity income that was "earned" while you were a CA resident, even if the RSUs vest after you leave. If you were granted RSUs in California and they vest after you move to Texas, California may claim a portion based on the ratio of CA work-days during the vesting period. See our California income tax guide for details.

2. New York's "convenience of the employer" rule. If your employer is based in New York and you work remotely from another state, New York may tax you as if you worked in NY -- unless you can prove the remote work is a "necessity of the employer," not just your convenience. This applies to RSU vesting income and can create double-taxation issues. See our New York income tax guide.

3. Filing in both states. Part-year residents typically file a part-year return in the state they left and a part-year or full-year return in the state they moved to. Most states provide a credit for taxes paid to other states on the same income, but you need to claim it correctly.

For the federal side of RSU taxation, see our 2026 Federal Tax Brackets guide and our complete guide to how RSUs are taxed. If you're dealing with estimated tax payments on RSU income, see our estimated taxes on RSU income guide. For a breakdown of effective RSU tax rates at different income levels, see our RSU tax rate guide.

Frequently Asked Questions

Which states have no income tax? Nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, Washington imposes a 7% capital gains tax on gains exceeding $270,000, and New Hampshire only became fully tax-free in 2025 (it previously taxed interest and dividends).

How do state taxes apply to RSU vesting? RSU vesting is taxed as ordinary W-2 income by your state of residence. Your employer withholds state tax at the supplemental withholding rate, which varies by state (10.23% in California, 11.70% in New York, 0% in Texas and Washington). The difference between the supplemental rate and your actual marginal rate creates either a shortfall (you owe more at filing) or a refund (you were over-withheld).

What if I move states mid-year with unvested RSUs? Your RSU income is typically allocated between states based on work-days in each state during the year. Some states like California may also claim a portion of income tied to services performed while you were a resident, even if the RSUs vest after you leave. You will generally need to file part-year returns in both states and claim a credit for taxes paid to the other state.

Do I owe state tax on stock options exercised in another state? It depends on which state and the type of option. California taxes ISO exercises as ordinary income regardless of federal treatment. Most other states follow federal rules, meaning ISO exercises only trigger federal AMT. If you exercised options while working in a different state, the state where you performed the work may claim tax on that income even if you no longer live there.

Which state has the highest tax on equity compensation? California at 13.3% (including the 1% Mental Health Services Tax on income over $1M). For New York City residents, the combined state plus city rate can reach 14.776%. Hawaii reaches 11%, and New Jersey 10.75%. Among states with major tech hubs, California and New York are the most expensive for equity compensation.

How do I file part-year resident returns? Each state has its own part-year resident form (e.g., California Schedule S, New York IT-203). You report your total income, then allocate the portion earned in each state based on work-days or other sourcing rules. Most states allow a credit for taxes paid to other states on the same income, so you generally are not double-taxed -- but you must file correctly to claim the credit.