Updated July 29, 2026. Quick answer: They use incompatible mechanics. California allocates by a workday ratio. New York allocates deferred compensation by a four-year compensation ratio. So the widely repeated claim that states “generally source by workdays during the vesting period” is wrong as a general statement — it describes California and not New York.
Two formulas, same payment
| California | New York | |
|---|---|---|
| Basis of allocation | Workdays | Compensation |
| Measurement window | Grant or purchase to vest, truncated at separation | Year of retirement plus the three preceding years |
| Authority | FTB Publication 1004; Cal. Code Regs. tit. 18 §17951-5 | 20 NYCRR §132.20 |
| Sustained by | Office of Tax Appeals in Appeal of Stabile and Appeal of Cremel and Koeppel | Departmental advisory opinions |
California’s ratio is stated plainly in its own publication: California workdays from the purchase or grant date to the vesting date, over total workdays in that period, applied to the income. Its manual is also explicit that the window truncates at separation — if you left before vesting, the period ends the day your employment ended.
Why this matters if you worked in both. Two states can each assert a share of the same payment on formulas that do not net to one hundred percent, because they are measuring different things over different periods. That is not a drafting accident you can argue away — it is two sovereigns using two methods. Credit-for-taxes-paid rules are what stop it being double taxation, and they work imperfectly across mismatched formulas.
Do not generalise from either one. “States generally source deferred comp by workdays” is refuted by New York’s own regulation, and any state not named here has its own rule that has to be looked up rather than assumed.
Sources
4 U.S.C. §114; 20 NYCRR §132.4(c) and (d), §132.18(a) and §132.20; New York Tax Law §632(b)(1)(B); NY Advisory Opinion TSB-A-24(11)I. All read July 2026.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.