What is the Jock Tax? A Guide for Athletes
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Although its name suggests otherwise, the jock tax isn’t just for professional athletes. It’s a type of income tax that states impose on nonresidents who earn money while they're visiting.
While it can be applied to other professionals working out of state, this tax is most often levied against professional athletes.
Some municipalities, like the City of Pittsburgh, also tax every player that earns money in their sports venues.
Because we look at the whole financial picture to help professional athletes build long-lasting wealth, we’ll share some strategies to ensure you don’t pay more in jock taxes than necessary.
Let’s start with how the jock tax works and a brief history of how it came to be.
Originally published on October 23rd, 2020. This article was updated and republished on February 4th, 2022.
How Does the Jock Tax Work?
The players on a single team can earn millions of dollars per day in taxable income when they travel out of state for a game. That’s an attractive source of tax revenue for state governments, and each state fights for as much of it as they can claim.
Professional athletes must file tax returns for each state that requires jock tax. According to a CNBC article, NFL players file between eight to 12 tax returns each season. NBA players file 16 to 20 tax returns. MLB players file 20 to 25.
And it’s not just players who have to pay the jock tax. Every team employee who travels—including coaches, doctors, and trainers—must pay their share of the jock tax.
Instead of filing a single tax return to report all of your income, you have to split your income across all the different states you played in, depending on how many games, training days, etc., you spent in each state.
Pittsburgh’s Jock Tax Legal Challenge: What’s Happening?
Although the jock tax doesn’t seem to be going away any time soon, there have been some legal actions aimed at making it more fair.
In 2004, the Pennsylvania Legislature issued a statute referred to as the “nonresident sports facility usage fee.”
Let’s say a nonresident athlete earned money inside a publicly-funded sports facility. The city could now charge the athlete usage fees: a flat amount or a percentage of the athlete’s income.
Pittsburgh was one of the cities that began charging visiting athletes. Nonresident athletes must pay 3% of their taxable “earned income.” Earned income includes salaries, wages, and bonuses.
But not everyone has to pay 3%.
Pittsburgh charges 1% of taxable “earned income” to its residents.
As you can see, nonresident professional athletes pay the highest percentage of taxable “earned income.”
However, this motivated athletes to fight back and file suit against the state. The suit argues that the statute goes against the Constitution of Pennsylvania, which claims that “all taxes be uniform,” meaning the state cannot tax nonresidents at a higher rate than residents.
In addition, the U.S. Constitution ensures that no single group (like professional athletes) can be targeted to pay higher taxes, and it does not leave room for cities to set working conditions for nonresidents that are more burdensome.
As of 2022, the case remains unresolved.
History of the Jock Tax
The exact origin of the jock tax is unknown, but a 1976 court appeal against California provides a clue.
Dennis Partee, former San Diego Chargers kicker and punter, filed an appeal regarding his taxes. As a nonresident athlete working in California, Partee disputed his tax fees.
Although it wasn’t new in some states, including New York (1974) and Wisconsin, the jock tax became widespread across the U.S. starting in 1991.
1991 was the year Michael Jordan and the Chicago Bulls beat Magic Johnson and the Los Angeles Lakers in the NBA Finals. Supposedly, the state of California wanted payback. So, it taxed Jordan and his teammates’ earnings from playing in California that year.
In retaliation, Illinois legislators passed their own tax law labeled “Michael Jordan’s revenge.” The legislators would only impose their “jock tax” on nonresident athletes from states that imposed “jock tax” on Illinois-based athletes.
After “Michael Jordan’s Revenge,” more states started imposing the jock tax, and it became a cost of doing business as a professional athlete.
States Want Their Cut of the Earnings
Due to the public nature of their job, athletes are singled out for nonresident alien taxes, unlike other professionals.
In 2003, the Seattle Times wrote about Duane Hoffman, an employee from the California Franchise Tax Board. He was specifically assigned to track professional athletes.
Here’s what the Seattle Times wrote:
“Hoffman pores over sports publications and online sites analyzing which teams are coming from where, which players are playing, when they arrive and when they leave.”
Back then, California had a $35 billion budget deficit. Naturally, the Golden State needed any money it could grab. So, it sent Duane Hoffman to do some hunting.
“States have long asserted the right to tax income earned within their borders, but the soaring incomes of athletes have given the jock tax special significance. The fiscal woes facing many states and even municipal governments have made them more aggressive in their collection efforts.”
Can you imagine how vital jock tax is for states in 2022?
Indeed, there’s a lot of money to be made. Take California, for example.
According to the San Diego Union-Tribune, California pocketed $216.8 million in jock tax in 2012. That figure climbed to $229 million in 2013.
How the Jock Tax Works
If not expertly handled, jock taxes can cost athletes a lot. In fact, failing to get the right advice when it comes to taxes is one of the reasons many athletes go broke.
The calculation of the jock tax varies by sport, and it’s essential that you consult with a qualified Certified Public Accountant (CPA) to make sure you meet your obligations in each state.
Here’s an example of how the jock tax would be calculated for a player in the MLB:
The first step is to calculate the portion of total income that will be taxable in each state. Divide the number of games played in a particular state or city by the total number of games played (including the regular season as well as pre-and post-seasons).
Then, multiply against the total amount the athlete was compensated for the year. That amount is then taxed according to each state’s income tax rates.
For example, let’s take an athlete with the following stats and determine the amount of Pittsburgh jock taxes owed:
Total games played at PNC Park = 5
Total games played pre- through postseason = 105
Total salary for the season = $5 million
5 games divided by 105 = 4.76%
4.76% of $5 million = $238,000
3% of $238,000 = $7,134 in taxes owed
Jock Tax Strategies: How to Keep More of Your Income
Since many states view high-profile nonresidents as a way to generate a significant amount of income – there’s no way to get around paying jock taxes. But you might be paying more than you have to.
“The more you can keep of your income, the better off you’re going to be. It’s as simple as that. Having a strong tax team is instrumental.”
~ Zach Miller, Private Wealth Advisor and former NFL athlete
Here are a few strategies to help you keep more of your income as a professional athlete.
Work with an Integrated Financial Team
Tax planning is an opportunity many professional athletes miss out on, focusing only on their investment returns. Ask your wealth advisors questions to make sure they have the right qualifications to advise you on taxes, too.
Instead of a traditional brokerage, consider whether the personalized approach of the family office model might be a better fit. It’s designed for high-earning individuals with substantial assets, to ensure unbiased advice.
With a family office, every action is considered in terms of your entire financial situation, including investments, taxes, and long-term vision. In a typical brokerage, on the other hand, the business model is based on selling investments.
Hire an Experienced CPA
Ensure your financial team includes a Certified Public Accountant (CPA) who knows how athletes are taxed. Each state has different requirements, and each sport has unique opportunities for tax planning.
The more experience your CPA has working with athletes in your situation, the better able they will be to save you money. For example, an experienced CPA can advise you on how a signing bonus will be taxed and how to structure the payments to minimize taxes.
Keep Track of Duty Days
Make sure your tax team keeps track of your duty days, not just game days. This is an often-overlooked strategy when it comes to jock taxes. We discussed this in more detail on our podcast for NFL players:
“You can have a tax team that actually plans for you and fights for the amount of days that aren't counted, like training camp, those tour days, and those double days that I had to go through, those definitely count as playing football.
And it's not just about game day, that's what everyone on the outside looking in thinks. It's your craft you’ve worked on year-round, whether it's mini-camp, OTAs. And so you need a tax team that can go through and say, ‘The allocation to the days that the team says that I played in that state is actually not correct, this is the correct allocation that should be.’ And you really need a good tax team that looks at that because it's state by state.”
Tax Deferral Strategies
Another benefit of having an integrated financial team is a better ability to align your investments with tax planning. With accounts like the individual 401(k), sometimes called a Solo k, you can defer some of your income to the future when you’ll be taxed at a lower rate.
Income from NIL deals like public appearances, trading cards, or an NFT, any income that ends up on a 1099 form can be deferred to when you’re not in the highest tax bracket.
Again, always consult with a qualified CPA about your situation.
Be The CEO of Your Career
You’re not just a “jock.” You’re the CEO of a money-making, athletic operation. While it’s tempting to listen to advisors who tell you to just focus on your sport, you have to take ownership of your financial future.
Why pay more in taxes than required?
Work with an experienced team skilled at helping athletes and their families protect and grow their wealth.
Contact us to help you retain as much of your hard-earned money as possible.