I understand that a portion of the income from those grants will be taxable in both states, and my employer has indeed filed a W-2 that shows income in both states. After reviewing documents provided by my employer, I believe their policy is to:
- Report the total amount of the stock award as California income.
- Determine the Oregon portion of the total amount, and report that as Oregon income.
- Withhold Oregon tax based on the Oregon portion, at the Oregon withholding rate.
- Withhold California tax based on (total_amount - oregon_portion), at the California withholding rate.
Is my understanding correct above? And if yes, is my employer's withholding policy typical (or even compliant)? It seems completely wrong for "reverse credit" state pairs like mine. Even with "forward credit" state pairs, it seems like this would result in under-withholding if the new state has a higher tax rate than the old state, since the new state will tax the full amount and the credit from the old state won't fully offset that.
I've sent my employer's payroll department email, and will update this topic when they respond. Curious to see if anyone already has experience though. I've searched but found nothing, I guess not a common situation. Thanks, and great forum.