If I worked in one state and live in another, in which state are my nqsos taxed?
September 10, 2001
Date: Thu, 30 Aug 2001
I have found your website worthwhile. However, I have a question that I have not seen mentioned on the site.
I lived in Indiana when I was granted NQSO from my company’s parent in New York. Now I live in Florida where there is no personal income tax. However, when I exercise the options, the New York company wants me to fill out a form indicating that I earned the option when I lived in Indiana and therefore state tax is due in Indiana on the ordinary income part of the transaction.
So, three questions: First, is Indiana state tax due on the exercise of the option? Second, do I have to indicate on the form that state tax is due in Indiana. Third, can I take the position that I now live in Florida and will owe no tax when the option is exercised?
I would appreciate any help you can give me. Thanks,
Date: Fri, 7 Sep 2001
You need to work with a tax advisor.
The source of the ordinary income from the options depends on where you were working when you received them and they became vested.
If you worked in Indiana when you received the options, then left your job with the employer and moved to Florida, the ordinary income is probably taxable in Indiana.
Since Florida has no income tax, you won’t receive a state tax credit for the Indiana tax.
According to the state tax rules, income is subject to state income taxation according to its source, not based on your residence. Some items, as dividends and interest, are sourced according to your residence. Others, such as wages and income from real estate, are sourced by other rules, such as where the services are performed and the location of the real estate.