What Delaware residents actually pay
Delaware taxes ordinary income at a top marginal rate of 6.6%. RSU settlement value, NSO exercise spread, and ESPP discount income all count as ordinary wages for this purpose and flow through the state's normal brackets.
Delaware-incorporated entities do not change your personal-tax state.
Federal AMT on the bargain element
Exercising ISOs and holding the shares creates AMT "preference income" equal to the spread between fair market value at exercise and your strike price. That's the bargain element. It doesn't show up on a W-2, and many people discover it only when their CPA calculates AMT in April.
Frequently asked
- Does Delaware tax RSU income the same as wages?
- Yes. Delaware treats RSU ordinary income as wages, taxable at the state's top marginal rate of 6.6%. Supplemental-wage federal withholding (22%, or 37% above $1M YTD) does not adjust for state withholding, so you often owe extra at filing.
- What happens if I exercise ISOs while living in Delaware?
- Delaware does not run a separate state AMT, so only federal AMT applies. You still need to model the bargain element carefully if you plan a cashless exercise-and-sell.
- I moved to Delaware from another state. Who taxes my vesting RSUs?
- Most high-tax states (CA, NY, MA) source RSU ordinary income to workdays between grant and vest. If your grant pre-dates your Delaware move, expect the old state to tax the portion of each tranche attributable to workdays earned there. Delaware taxes the remainder.
- Can I reduce Delaware taxes by timing my RSU sales?
- Delaware taxes long-term capital gains at the same rate as ordinary income, so timing alone does not produce a state savings — only federal. Holding for 12 months still halves the federal rate on gains above basis.
Related
- RSU taxes — Delaware
- Capital gains tax — Delaware
- QSBS — Delaware
- Moving to or from Delaware with unvested equity: trailing nexus rules — Delaware
- RSU vesting schedules — Delaware
- ESPP taxation — Delaware
- NSO exercises and state tax — Delaware
- 401(k) and retirement accounts — Delaware
- Leaving Delaware: how to cleanly break residency before a liquidity event — Delaware
- Delaware equity-comp overview