Nerding Out: The Jock Tax

For agents and teams negotiating player contracts, taxes are often an overlooked yet complicated issue. The difference between tax rates in various US states and different countries (yes, Canada, we’re looking at you) can have significant implications. For example, Sportico recently reported that Luka Dončić will lose several million dollars a year by moving from Texas (which has no state income tax) to California (home to the highest state tax rate in the US).

Adding to these complexities, several states began aggressively enforcing “jock taxes” in the 1990s. These taxes effectively levy an income tax on nonresident professional athletes for the time they spend playing in a given state. Some cities have even joined in. For instance, it’s reported that Alex Rodriguez paid over $500,000 per season in income taxes imposed outside of his home state. In 2018, when Hurricane Irma forced the Miami Dolphins to move their training camp to California, they inadvertently created a tax obligation for every team member who attended. As a result, professional athletes can end up filing over 20 separate income tax returns in a single year. Another layer of complexity is determining which types of income are included in the calculation of what is owed; signing bonuses, performance bonuses, and deferred salaries are all subject to debate. There is even discussion about whether NIL (name, image, and likeness) earnings should be included. While this might not garner much sympathy from everyday workers for athletes with multimillion-dollar deals, the jock tax technically applies to everyone on the team, including trainers, equipment managers, and other support staff.

On a practical level, this underscores the importance of tax services for player representatives. Taxes aren’t glamorous, but they must be taken into account when comparing competing offers. Two deals that look identical on an offer sheet could be significantly different once the tax implications are factored in. In addition to estimating the tax differences, a knowledgeable tax accountant can also devise strategies to minimize the jock tax through creative financial planning.