Professional Athletes Get Pounded By "Jock Tax"
Unlike other professionals, professional athletes are subject to a unique application of the tax law commonly referred to as the Jock Tax.
In theory, everyone who earns wages, whether they be a mechanic, doctor, salesman or entertainer, is subject to state income taxes on the wages they earn while doing business in that particular state (assumeing its one of the 43 states that impose state income taxes). However in actual practice, states do not try to identify and tax wage earners who are in their state for only several days of business, or who may even sporadically visit their state on and off during the year for work purposes.
But professional athletes, with annual wages usually much higher than the average worker, are a significant potential source of revenue to state coffers. And unlike other professionals, professional athletes work schedules are published in the news and on the internet for all to see (each team has its game locations and dates published in season schedules everywhere). And so professional athletes are taxed by states for the days they have games, practices and meetings in their state.
Here is a simplified example of how that works.
Most states use something called *duty days* to compute how much of a professional athletes salary is taxable in their state. A duty day represents any day that a professional athlete has a game, practice, meeting, appearance in their state. And the season for a professional football player from the beginning of training camp to the end of the playoffs is typically around 200 days.
So imagine a football player who has a $3,000,000 annual salary. If that player who plays for the Atlanta Falcons, plays three games a year in New York (against the NY Jets, NY Giants and the Buffalo Bills), and for each game day also has a travel day and a practice day in New York state, then that player would have nine duty days in the state of New York that year 9/200 x $3,000,000 = $135,000 of income being taxed under the Jock Tax by New York state. $135,000 x 6.85% NY state tax (assuming the highest marginal tax rates apply) and $90,000 of that taxed by New York City taxes at 3.591% = tax liability of $12,479.
And that is state taxes for just working in the state for nine days, which is easily much less than many other professionals wind up spending in their annual business travels to New York (for which they pay no New York taxes).
Is this fair? Not if you acknowledge that every other professional, including other fairly highly paid professions like attorneys, investment bankers and entertainers often have plenty of work days in various state and pay no state taxes to those states. But states are focusing their resources on where they can get revenues and the Jock Tax is an easy target it would seem.
Its been reported that the Jock Tax begain with the 1991 NBA Finals where the Chicago Bulls beat the LA Lakers and then received tax bills from the state of California Department of Revenue for the three games the Bulls played in Los Angeles. After that Illinois responded and then many other states jumped on the bandwagon and now rely on those revenues from taxing professional athletes who come into their states for games.
With top-level athletes in football, basketball, hockey and baseball now making annual salaries of $2.9 million, states like California with 15 major professional teams count on (and go after) those jock tax revenues. In 2006-2007 it was reported that California hauled in $102 million in taxes from visiting athletes.
For this reason, professional athletes need an experienced CPA who understands the jock tax and can help them take full advantage of all potential tax deductions and tax saving strategies relative to the activities and earnings of professional athletes.
At Helfer & Company CPA, P.C., we understand the tax and accounting issues professional athletes face and we are able to help them keep more of what they earn!
