State Taxes for H-1B Visa Holders: A State-by-State Guide

Federal taxes get most of the attention, but for H-1B holders in California or New York, state taxes can add 9–13% on top of your federal bill. Understanding which state you are taxable in, how multi-state situations work, and where RSU income gets taxed can save you thousands — or prevent an unexpected state tax bill.

How State Residency Works for H-1B Holders

Unlike federal taxes, which use the Substantial Presence Test — a standardized IRS day-count formula — each state has its own residency rules. Most states use one or both of:

• Domicile-based residency: You are a resident if your permanent home — the place you intend to return to — is in that state, regardless of how many days you physically spent there. California and New York use domicile-based rules. Moving out of state does not automatically sever residency if you maintain significant ties (property, business interests, family).
• Statutory residency (day-count): Even if you are domiciled elsewhere, spending 183+ days in a state while maintaining a permanent place of abode there can make you a "statutory resident" — and therefore taxable as a full resident on worldwide income. New York is particularly known for this rule.

For most H-1B holders who live in one state all year, residency determination is simple. The complexity arises when you move, work remotely across state lines, or have income from multiple states.

States with No Income Tax

Nine states impose no broad-based individual income tax on wages:

H-1B holders in Texas, Florida, or Wyoming pay zero state income tax on their wages. On a $180,000 salary, that is roughly $10,000–$15,000 in annual savings compared to a California resident at the same income level.

Washington State's Capital Gains Tax

Washington has no income tax, which makes it attractive for high-earning H-1B holders at Amazon, Microsoft, and other Seattle-area tech companies. However, since 2022, Washington imposes a 7% capital gains tax on the sale or exchange of certain long-term capital assets where gains exceed $278,000 (adjusted annually for inflation). Additionally, a 9.9% rate applies to gains exceeding $1,000,000 above the threshold.

The tax applies to net long-term capital gains above the threshold — including gains from RSU sales where the holding period qualifies for long-term treatment. Several categories are specifically exempt: gains from sales of real estate, retirement accounts, business interests, and certain agricultural land are not subject to the tax. But standard stock and RSU sales are within scope.

High-Tax States: Rates and Key Rules

RSU Income and State Taxes: The Vesting Period Allocation

When you receive RSU income at vesting, most states tax it based on where you physically worked during the RSU vesting period — not necessarily where you live when the shares vest. This is called "vesting period allocation" or "source-of-income allocation."

Example: Your RSU grant vests over 4 years. You worked in California for the first 2 years and Washington for the last 2 years. When the RSUs vest, California can tax 50% of the RSU income (the portion attributable to the California work period) even if you are now a Washington resident.

This is a non-obvious rule that many H-1B holders who move from California to a no-income-tax state discover the hard way. California is particularly aggressive about collecting this source-based tax — it issues Form 3840 (California Source Income — Installment Sales) notices and has legal authority to tax income attributable to California work regardless of where you reside at vesting.

Part-Year Residency: Moving Mid-Year

When you move from one state to another mid-year — for a job change, H-1B transfer, or relocation — you typically file as a part-year resident in both states. Each state taxes the income earned while you were a resident of that state. Income earned while you were a nonresident is generally not taxable by that state, except for state-source income (wages for work physically performed there, California-source capital gains, etc.).

In a relocation year, you typically file:

1. A federal Form 1040
2. A part-year resident return for the state you moved from, covering the period you lived there
3. A part-year resident return for the state you moved to, covering the period you lived there

If you also earned income in a third state where you never lived — for example, stock options from a former employer headquartered in another state — you may need an additional nonresident return for that state. Three or four-state returns are not uncommon in H-1B job-change years.

Credits for Taxes Paid to Other States

Most states with income tax provide a credit to residents for income taxes paid to another state on the same income. This prevents full double taxation. The credit is typically limited to the lower of the two states' effective rates on the income at issue.

Example: You live in New Jersey and work in New York. You earn $200,000 attributed to New York (nonresident return). NY taxes it at approximately 6.85%. NJ taxes the same income at 6.37% (resident return). NJ gives you a credit for the NY tax paid, substantially reducing your NJ liability. Because NY rates are slightly higher, the NJ liability is mostly — but not fully — offset. You pay approximately the higher of the two states' rates, not both states' full rates on the same income.

Common Mistakes

1. Assuming no-income-tax means no state taxes at all. Washington's 7% capital gains tax on gains above $278,000 is a significant recent development. H-1B holders in Seattle with large RSU appreciation who sell shares in a single year can owe substantial Washington state tax despite the "no income tax" reputation.
2. Forgetting to file a nonresident state return. If you earned wages in another state — even briefly — that state may require a nonresident filing. A work trip to Illinois, a conference in New York, or consulting work performed in California can create nonresident return obligations.
3. Thinking your California tax obligation ends when you move. RSU income attributable to California work periods remains California-taxable even after you leave the state. You must file a California nonresident return for the California-source portion in the vesting year.
4. Missing the New York City resident surcharge. H-1B holders who live anywhere in the five boroughs of New York City owe NYC resident income tax in addition to New York State tax. Many filers correctly complete the NY State return but leave the NYC resident tax lines blank.
5. Applying the New York convenience of the employer rule incorrectly. If your NY employer required you to work from New Jersey (not just allowed it), the New York convenience of the employer rule does not apply — the NJ wages are not New York-source income. Document the business necessity for remote work carefully if this applies to you.
6. Not checking state conformity before claiming federal deductions. California does not allow the QBI deduction, federal bonus depreciation, or some Section 179 limits. New Jersey does not conform to federal depreciation for certain assets. Always check state-specific conformity for any large deduction you plan to claim.

How Our Platform Handles This

Our current platform generates federal Form 1040 returns. State returns are not included in the current filing package — we focus on the H-1B-specific federal complexity (FATCA, PFIC, FBAR, RSU basis, foreign tax credits) that standard tax software handles poorly.

For state returns, we recommend using TurboTax State, H&R Block State, or your state's free filing option after completing your federal return with us. The completed federal return provides the income totals and allocation that state returns reference — making the state filing significantly more straightforward once the federal return is correct. For California multi-state RSU allocation specifically, you will want to reference the vesting period days-worked fraction described above and apply it when completing Schedule CA on your California return.

Read next: RSU cost basis and state allocation for a deeper look at how RSU income is tracked across states, or see our estimated tax payments guide — most states with income tax have their own quarterly estimated payment requirements with separate deadlines and penalties from the federal system.