California for NRI families: residency, RSUs, SDI and what the state does not follow

California is where many NRI tech families live, and its rules differ from the federal return in ways that catch people out. The figures below are for tax year 2025 unless stated, and the state agency pages we rely on are listed in the form-links box at the end.

Who is a California resident

California taxes residents on income from everywhere, including India. A resident is someone who is in California for other than a temporary or transitory purpose, or who is domiciled in California but outside it for such a purpose. Domicile is the place of your most settled and permanent connections, to which you intend to return. You can have only one.

California presumes that anyone in the state for more than nine months of the year is a resident, though this can be rebutted by showing a temporary or transitory purpose. Moving in on a work visa with an intention to stay can make you a resident from the day you arrive, not from the ninth month. There is a safe harbour for a California domiciliary working abroad under an employment contract for at least 546 consecutive days, with strict limits on days spent back in California and on investment income.

Rates

California has graduated rates. For 2025 the top rate is 12.3%, starting at $742,953 of taxable income for a single filer and $1,485,906 for joint filers. A further 1% applies to taxable income over $1 million, which the state now calls the behavioural health services tax. The combined top rate is therefore 13.3%.

California has no lower rate for capital gains. A gain on shares or a home is taxed as ordinary income, which matters more here than in most states.

RSUs and stock options if you moved

If you worked in California for part of the time between the grant and the vesting of an RSU or option, California taxes the part of the income that matches California workdays. The state's Chief Counsel Ruling 2013-02 calls this the most reasonable method: the ratio of California workdays to total workdays from grant to vest, or to exercise. A person who leaves California before the shares vest can still owe California tax on part of them. Keep a record of the days worked in each state. See equity compensation.

Where California does not follow the federal return

• Health savings accounts. Contributions are not deductible for California, and the earnings are taxable.
• Foreign income tax. California does not allow the federal deduction for foreign income taxes, and we have not found a California credit for tax paid to India. Indian tax that is credited on the federal Form 1116 may therefore reduce your federal tax and do nothing for the state. Ask your preparer to check this each year.
• Other states' tax. California has a credit for tax paid to other US states, not to other countries.

Payroll tax: State Disability Insurance

Employees pay State Disability Insurance through payroll. The rate is 1.2% in 2025 and 1.3% in 2026, and the wage cap has been removed, so it applies to all wages. The deduction appears on your pay slip. The Employment Development Department says citizenship and immigration status do not affect eligibility, though H-1B workers are not named specifically.

Forms and dates

Residents file Form 540. Part-year residents and non-residents file Form 540NR, and both attach Schedule CA to adjust federal figures. The return and any payment are due on 15 April. A taxpayer who is outside the United States on that date gets until 15 June, and a further six months to file after that, though interest still runs on tax owed.

Spouses and community property

California is a community property state: income earned during marriage is owned half by each spouse. If one spouse is a California resident and the other a non-resident, for example a spouse still in India, income can be split in ways that bring the absent spouse's earnings into the California return. This is a reason to model the spouse election with the state in mind. See the spouse article.

What to do

1. Write down your date of arrival and the date your permanent home moved.
2. Keep a workday log if you move in or out of the state in a year with stock vesting.
3. Ask for the state calculation separately from the federal one.
4. Expect California payroll tax, and check the SDI line on your pay slip.

California's residency and stock rules are applied from facts, not from a form. If you are moving in or out of the state in a year with large vesting, get advice before the move, not after it.