Forum: Author Hangout

Professional Sports Players and Income taxes

PotomacBob 🚫

I heard, on the radio, a small part of what was probably a much longer interview. The guy being interviewed was said to be an NBA player, and he was talking about new professional sports players and their finances. The words in quotation marks that follow may not be precise, but they're very close to what he said. "These young players think they are fine financially until they get that first paycheck, and then their reaction is 'where'd all the money go?' What they had not realized is that their pay is subject to state income taxes in every state where they play a ballgame."
I didn't know that either. Did anybody else know that?

Replies: mauidreamer Ernest Bywater StarFleet Carl

mauidreamer 🚫

@PotomacBob

Yes, and it may be a double whammy if the city has separate city income taxes ...

but there is also a break as the home state/city can't charge taxes for "away" earnings ..

Replies: Dominions Son PotomacBob Mushroom

Dominions Son 🚫

@mauidreamer

but there is also a break as the home state/city can't charge taxes for "away" earnings ..

The home state can if it has a reciprocal tax agreement with the away state.

PotomacBob 🚫

@mauidreamer

but there is also a break as the home state/city can't charge taxes for "away" earnings ..

My personal experience would dispute that. Once, when I moved from one state to another, the state I moved from assessed income taxes against my compensation for the whole year, even though I earned money in that state for only a partial year.

Replies: StarFleet Carl

StarFleet Carl 🚫

@PotomacBob

Once, when I moved from one state to another, the state I moved from assessed income taxes against my compensation for the whole year, even though I earned money in that state for only a partial year.

What state? Even if you were a full time resident of State A, depending upon when during the year you moved to State B and established residency there, State A should have only taxed you on income you had while living there. Or you should have been able to claim a credit of the taxes you paid to State B against the total income filed for State A.

A lot of it does depend upon how far from State A you moved, and what agreements they have with State B.

Mushroom 🚫

@mauidreamer

but there is also a break as the home state/city can't charge taxes for "away" earnings ..

Wrong, they can. And some (California) are known to go after people even after they stop working and move to another state.

Just because you are out of the state, does not negate the obligation to the state you are a resident of. Many times as a contractor as well as when I was in the military, I would work in another state, yet my taxes were still set and paid to the state I signed the contract in.

Otherwise, quite literally no state could tax long haul truck drivers. Just avoid ever driving in your state if that was true, and you would never pay state taxes.

Ernest Bywater 🚫

@PotomacBob

I'd check that with a tax accountant. Some years back I looked into the professional sports tax situation, and it may have changed since then, where I found that a player for a club based in Denver, Colorado, has to pay Colorado state income tax and when they play a club in Los Angeles, California they have to pay California income tax on what they earn in that game in California, then they have to pay the federal income tax, although when they do their tax return some of the state taxes can be claimed back from the feds.

Replies: Dominions Son Mushroom

Dominions Son 🚫
Updated:

@Ernest Bywater

I'd check that with a tax accountant.

I have personal experience with it. While the general default rule in the US is that income is taxed where it's earned, that's only a default.

There's a thing between some states called reciprocal tax agreements. The two states for an agreement that between the two of them if the residents in one state work in the other then they pay income taxes to their state of residence.

This affects tax withholding as well, so while I was living in Wisconsin and working in Illinois for an Illinois based company they took Wisconsin state withholding out of my paycheck.

State reciprocal tax agreements do not affect local income taxes.

Mushroom 🚫
Updated:

@Ernest Bywater

I'd check that with a tax accountant. Some years back I looked into the professional sports tax situation, and it may have changed since then, where I found that a player for a club based in Denver, Colorado, has to pay Colorado state income tax and when they play a club in Los Angeles, California they have to pay California income tax on what they earn in that game in California

And that is actually not on actual "income".

However, if a player is playing in an away game, they then get extra money based upon the broadcast rights in the local area of that game. That is not their actual "income", as it is not their actual salary but money gained through another source.

No different than if on the off season they fly to California and get paid to appear in a movie. Say as a co-pilot in a disaster movie. Then they do pay California taxes, as they are "working" in California on that specific project.

StarFleet Carl 🚫

@PotomacBob

Did anybody else know that?

Yes, it's called the 'Jock' Tax (seriously!), and it started courtesy of (who else?) California. There are a few states without it, and Illinois waives for teams from those states that don't charge players from there. (Texas, Florida, both Washingtons, and Tennessee).

Replies: Dominions Son

Dominions Son 🚫

@StarFleet Carl

Yes, it's called the 'Jock' Tax (seriously!), and it started courtesy of (who else?) California. There are a few states without it, and Illinois waives for teams from those states that don't charge players from there. (Texas, Florida, both Washingtons, and Tennessee).

It's how normal income taxes work if you work in multiple states.

And professional athletes don't have it the worst.

The way some of the big accounting and law firms in the US assign income to their partners means that partners that live in states without any reciprocal tax agreements have to file for state income taxes in all 50 states.

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Forum: Author Hangout

Professional Sports Players and Income taxes

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