Non-resident return — definition & guide

A state income tax return filed by a taxpayer who was not a resident of that state during the year but earned income sourced there. Required to pay source-state tax and document foreign-state tax for the resident credit.

A non-resident state tax return reports income sourced to a state by a taxpayer who was not a resident of that state. For equity compensation, non-resident returns typically arise when an RSU or NSO vesting during the year is partially attributable to workdays in the non-resident state during the grant-to-vest period. The taxpayer allocates wages by workday ratio, pays state tax at the state’s non-resident rate, and the payment supports the resident state’s credit for taxes paid elsewhere.

Example: a Texas resident had worked in California for 14 of the 48 months of an RSU grant’s vesting period. His 2025 vest is 29% California source. He files California Form 540NR, reporting $87,000 of California wages from a $300,000 vest, paying roughly $7,500 of California tax. Texas imposes no resident tax, so no credit is needed.

Common mistake: skipping the California return because California tax was withheld by the employer and the employee assumes withholding is the final liability. Without a filed return the IRS and FTB cannot close the year, and refund rights expire four years later.

Non-resident returns matter in every post-move RSU vest year, at IPO lockup expiration after a move, and in any year with California-source deferred compensation.