For pro athletes, taxes can mean hundreds of thousands of dollars (even millions!) over the course of your career.
As you travel for games, you earn income in multiple states. This makes your taxes extra complicated. It may be tempting to throw your hands up and accept whatever tax burden you may receive as inevitable.
But there are strategies you can employ now to pay less. Understanding tax obligations by location is one of the most crucial steps to avoid giving the IRS a tip this year.
Here’s what you need to know to save.
What is the Jock Tax?
One of the most significant tax burdens for athletes is the jock tax, a tax imposed by states and municipalities on nonresident athletes who earn income while playing in their jurisdiction. Essentially, if you play a game or participate in an event in a state that enforces this tax, you owe state income tax for the portion of income earned there.
States calculate the jock tax using a duty day or games played method. The duty day method allocates an athlete’s total annual earnings based on the number of days spent working in that state. The games played method divides an athlete’s income by the total number of games played and assigns tax liability accordingly. While most states impose a jock tax, some, like Texas and Florida, do not have state income taxes, providing potential financial benefits for athletes who reside there.
Managing Multi-State Tax Obligations
Because most states require income tax filings when earnings are generated within their borders, professional athletes often file tax returns in multiple states each year. Strategies to manage this complexity include:
- Maintaining Residency in a Tax-Friendly State: Choosing a primary residence in a state with no income tax (such as Florida, Texas, or Nevada) can significantly reduce overall tax liability. However, proving residency requires careful documentation, including time spent in the state, property ownership, and business connections.
- Tracking Travel and Duty Days: Keeping precise records of travel schedules, game appearances, and training days is essential for accurately reporting income allocation across states.
- Leveraging Tax Credits: Many states offer a reciprocity agreement or tax credit for taxes paid to other jurisdictions. This prevents double taxation, but proper planning is necessary to maximize benefits.
- Working with a Tax Professional: A CPA or tax advisor specializing in athlete taxation can help navigate the complexity of multi-state filings, deductions, and compliance.
International Tax Considerations
Athletes who compete overseas face additional tax challenges, including:
- Foreign Taxation: Many countries impose taxes on income earned within their borders. Depending on the host country’s tax rate, this can significantly impact take-home earnings.
- Foreign Tax Credits: The U.S. allows athletes to claim foreign tax credits to offset taxes paid abroad, helping to avoid double taxation.
- Tax Treaties: The U.S. has tax treaties with several countries that may provide exemptions or reduced tax rates for American athletes. Understanding these treaties can optimize tax obligations.
- Residency Rules: Some countries apply residency-based taxation, meaning athletes may owe taxes on worldwide income if they stay beyond a certain number of days.
Your Game Plan for Tax Season
Handling multi-state and international tax obligations is a critical aspect of financial planning for professional athletes. The combination of the jock tax, differing state and international tax laws, and residency requirements makes tax management a challenge that requires strategic planning and expert guidance.
Working with experienced financial advisors and tax professionals can help minimize tax liabilities, maximize earnings, and ensure full compliance with all applicable laws.
For a complete list of tax planning action steps, check out of full tax planning guide by former MLB turned advisor Jacob Turner. You can also subscribe to our newsletter for more insider financial tips for athletes.
