The "jock tax" is a unique financial consideration for professional athletes and other high-profile earners, such as entertainers, who travel frequently for work across various states and cities. Despite its colloquial name, the jock tax isn't exclusive to athletes—it applies to anyone whose income is earned across multiple tax jurisdictions. However, due to the high salaries and frequent travel of athletes, this tax has a more profound impact on them.
Let’s break down what the jock tax is, how it works, and why it has become a critical part of financial planning for athletes.
Call Turner Business Solutions at (316) 285-0125 to speak to a tax professional that can assist with your taxes. You can also schedule a free consultation online.
What is the Jock Tax?
The jock tax refers to state and local income taxes imposed on individuals who earn income while working in a state where they do not live. For athletes, this means paying taxes in every state (or city) where they play, even if they only spend a few days there. The tax applies to anyone whose income is generated across state lines, but it became widely known in the 1990s due to the prominent earnings of athletes.
History of the Jock Tax
The roots of the jock tax go back to the early 1990s, when California imposed taxes on the earnings of out-of-state athletes, particularly after the Chicago Bulls won the NBA championship in 1991. Many referred to this as California’s "Michael Jordan tax." In response, Illinois and other states began taxing athletes from visiting teams, making the jock tax a widely adopted practice. Today, most states with income taxes enforce the jock tax, and it extends to non-resident entertainers and even corporate executives who travel for work.
How Does the Jock Tax Work?
Athletes are taxed based on the amount of time they spend working in a particular state, measured in "duty days." Duty days are the days an athlete is actively working—whether in training, playing games, or participating in team activities—in a state. The tax is calculated by dividing the athlete’s total annual income by the number of duty days in a year and then determining how much of that income was earned in each state.
For example, if an NBA player makes $10 million a year and has 200 duty days, playing 5 games in California would mean that a portion of their earnings from those five games would be subject to California’s income tax.
Impacts on Athletes
Due to the jock tax, athletes often face complex tax situations. For one, states have varying tax rates, so a player might pay more in one state and less in another. Some states, like Texas and Florida, have no state income tax, making home games more financially beneficial for athletes who live and play in those states.
Additionally, the jock tax isn't limited to players in high-profile sports like football, basketball, or baseball. Athletes in sports leagues with lower salaries, such as minor league players or professional golfers, are also subject to these taxes, which can make a noticeable dent in their earnings.
Financial Planning and the Jock Tax
For athletes, understanding the jock tax is essential for effective financial planning. They must account for the varying tax rates in different states, the impact of local taxes, and the complexities of filing multiple tax returns. Many athletes work with specialized accountants who are familiar with the intricacies of the jock tax and can help minimize their tax liabilities while ensuring compliance.
Beyond athletes, other professionals who travel frequently for work—such as entertainers and corporate executives—may also need to consider how the jock tax affects their income. The tax, though burdensome, can be navigated with proper planning and expert advice.
Conclusion
The jock tax represents a significant financial burden for athletes, who must pay taxes in each state where they play. What was once an obscure tax law has become a key factor in the financial management of athletes and entertainers alike. As more states adopt this tax policy, athletes must continue to adapt their financial strategies to ensure they are meeting all tax obligations while protecting their earnings.
Understanding the jock tax is crucial not just for athletes but for anyone who earns income in multiple states. With the right planning and professional advice, managing this complex tax can be a smoother process.
Call Turner Business Solutions at (316) 285-0125 to speak to a tax professional that can assist with your taxes. You can also schedule a free consultation online.
Related Posts
