TSB-M-07(7)I: NY Treatment of RSU Vesting for Individuals Relocating to Non-Tax State

Tax laws might be complex and require specific attention from those who seek optimized results. Dimov Tax delves into a vital subject that concerns individuals relocated from New York to non-tax states: TSB-M-07(7)I and its implications on RSU vesting. 

What is TSB-M-07(7)I?

TSB-M-07(7)I represents Technical Services Bureau Memorandum 07(7)I which was published by the New York State Department of Taxation and Finance. It addresses the tax treatment of restricted stock units (RSUs). The individuals who were residents of New York at the time of the RSU grant but thereafter moved to a state where there is no income tax obligation are concerned within the memorandum. This memorandum provides important guidance on how RSU income is sourced and taxed under certain circumstances.

The allocation of compensation income from stock options, restricted stock and RSUs is determined based on specific criteria set forth by the New York State Department of Taxation and Finance. Our seasoned experts can assist you with these methods and help to ensure compliance with current regulations.

Non Residents

For non residents, the New York source income is calculated by multiplying the compensation related to stock options, restricted stock and RSUs by the New York workday fraction. This fraction considers the number of days worked within New York State over the total number of days worked and provides a clear framework for determining tax obligations.

Understanding RSU Vesting

RSU vesting concept must be discussed before starting the details of TSB-M-07(7)I. RSUs are offered by companies to their employees as a form of compensation. When RSUs are granted to an employee, the actual stock is not received at the very moment. On the contrary, the right to receive the stock at a future date is granted which is subject to certain conditions and referred to as vesting generally.

Statutory Stock Options & Restricted Stock

Incentive stock options and employee stock purchase plans fall under statutory stock options and are subject to specific IRC regulations. Our professionals are determined to assist you in understanding the tax treatment of gains realized from these options. Ensuring accurate reporting to New York State tax authorities is of vital importance.

The tax treatment of restricted stock awards is regulated by section 83 of the IRC. The concept varies based on whether a section 83(b) election is made. 

Stock Appreciation Rights & Nonstatutory Stock Options

Stock appreciation rights grant individuals the option to receive a cash or stock award based on the appreciation in the value of company stock. On the other hand, nonstatutory stock options do not meet IRC requirements for statutory stock options. They require careful consideration of fair market value at the time of grant. Our tax experts could assist in determining the compensation attributable to these options and help you comply with the legislation.

Implications for Individuals Relocating from New York to Non-Tax States

TSB-M-07(7)I should be handled with attention. The timing and sourcing of RSU income are primarily addressed in the memorandum for tax purposes. If the RSUs were obtained for services provided when the individual was a New York resident, the income generated from RSU vesting is considered as New York Source income according to the memorandum. This indicates that even if the individual moves to a non tax state before the RSUs vest, New York retains the right to tax the income from mentioned RSUs.

Key Considerations for Tax Planning:

1. Relocation Date: If an individual has RSUs that are about to vest and moving from New York to a non-tax state is considered, the timing of the relocation is of fundamental importance for minimizing potential tax liabilities.

1. Advisory of the Professionals: Given the complexity of tax laws and their implications on RSU income, it would be appropriate to consult with experienced tax professionals who could provide custom guidance based on each different situation.

1. Understanding State Tax Laws: Apart from TSB-M-07(7)I, it is highly important to recognize the tax laws of both New York and the destination state to fully comprehend the tax implications of the relocation.

1. Double Taxation: Moving from New York to a non-tax state does not necessarily mean that an individual will not have any tax obligations to New York Tax Authorities. Understanding the potential for double taxation and implementing strategies to mitigate it is essential.

Dealing with the complexities of tax matters requires certain expertise. Especially with reference to significant events like RSU vesting during a relocation from high-tax states like New York to those with different tax structures, it necessitates extra attention. We have a dedicated team of tax specialists in Dimov Tax and are committed to staying updated on the constantly developing tax laws and recent practices. 

We are here to support you every step of the process whether you are planning relocations, facing applications concerning RSU vesting or looking for assistance with any other taxation matters.