01 / 10 / 19

Who Pays 'Dat Tax?

As all of Louisiana gears up for the big playoff game this weekend . . . Saints v. Eagles . . . what better time to blog about the NFL and taxes! Have you ever wondered how much income taxes your favorite NFL players are paying? It might surprise you.

NFL athletes make a minimum of approximately $500,000 per year with the top earners grossing over $20,000,000 per year. As high-income earners, these players typically fall in the highest federal income tax brackets. Under the 2018 Tax Cuts and Jobs Act (TCJA), taxpayers with a taxable income of $400,001 to $600,000 fall under the 35% income tax rate when filing married filing jointly. For income above $600,000 that rate goes to 37%.

In addition to these federal income taxes, NFL players are also required to pay state income taxes in their home team’s state – Louisiana included. And, in some situations, they are required to also pay taxes to each state in which they play a game – a/k/a the “Jock Tax”.

Determining a player’s “home state” can be tricky! It’s mostly based on domicile – that is, where the player lives and plans to live in the future. Indicia of domicile are whether the player has a permanent residence in the state . . . whether he has a driver’s license and is registered to vote there . . . and other connections to the state. The big factor for NFL players is where he spends the offseason because this shows his intent to stay.

Some states stretch the test and deem players as “statutory residents” if they spend 183 days in the state in a given year. Another complicating factor can be NFL athlete trades – especially mid-season! Many states offer tax reciprocity which can save a player significantly. Similarly, most players generally do receive credits for taxes paid to other states.

The “Jock Tax” is based on the number of days a player spends performing “income related work” in a state. These “duty days” are counted on the first day of NFL practice or if in the states of Arizona or Michigan, beginning on the first day of regular season. For example, when an NFL team travels to an away game they spend at least 2 days in the state = 2 duty days. The state then taxes the percentage of duty days spent in that as income derived from that state.

According to a 2017 Bloomberg article relating to Taxes and NFL Players’ Salaries, “New Orleans Saints Quarterback Drew Brees, who plays in California twice (including the preseason) and other high-income tax states such as New York and Minnesota . . . faces a Jock Tax bill of $206,766.”

In 2017, SmartAsset collected salary and bonus data on NFL players and calculated the federal, state, and local taxes of many NFL players. Drew Brees of the New Orleans Saints had the largest overall tax bill in their analysis with an estimated $11.7 million dollars owed to state and federal taxing authorities!

Wow! It’s no wonder so many super athletes find themselves in the IRS radar these days.