All-Pro safety Jordan Poyer recently brought up an important concern for many in the athletics field. In a recent episode of The Jordan Poyer Podcast, the defensive star explained how he would prefer to see less of his salary be taken away in taxes. Although taxes are not as exciting as how a player will be utilized in a new regime, it is an important consideration for any free agent as they determine their next move.
Taxes are a complicated subject in professional sports. Players and staff who travel with their teams are subject to multiple layers of taxation. The differences between state income tax regimes present unseen disparities in pay and have played a role in player signings. Differences in tax schemes can mean millions of dollars for some, and difficult penalties for others. While some are equipped to handle this disparity, many are not as fortunate.
Poyer is not the first to raise concerns about his tax bill. One of the biggest trades of the 2022 offseason was speedster wide receiver Tyreek Hill. The trade was made with input from Hill on where he wanted to go and with which team he would be willing to sign a contract. Hill reported that it came down to the New York Jets and the Miami Dolphins. However, in the end, Hill chose the Dolphins as his landing spot because of taxes. The decision represented a savings of about $3 million.[1]
The concern transcends superstar football players. A 2015 study commissioned by the Americans for Tax Reform and the Canadian Taxpayers Federation found that hockey players are also significantly influenced by tax burdens. The study found that half of the free agents in the 2015 offseason chose to sign with teams that have a lower tax burden than their previous team. The study also discussed how players utilize no trade clauses to avoid going to higher tax states. One example from the study was how former Sabres defenseman Tyler Meyers saved over $400,000 by only approving a trade to Winnipeg.[2]
States are very aware of the money they bring in from professional athletes. New York has carved out specific tax rules for individuals who are members of a professional athletic team. Those members are required to pay taxes on their earnings made in New York on “duty days,” which includes days when players are at a game or a practice, but does not include travel and non-team activities.[3] Many other states have carved out similar tax laws which have come to be known as “jock taxes.” While a player cannot plan around a jock tax, they do often require specialized tax preparation services to ensure that they comply with the law of every state they play in.
New York uses its athlete taxes on sports projects. The new Bills stadium project was justified in part due to the tax revenue. Governor Hochul explained that the stadium would bring in $27 million in taxes every year.[4] That figure presumably takes into account the taxes generated by keeping athletes in town paying taxes.
Jock taxes are burdensome for superstars who have complicated bonus structures, but are punitive for those in lower positions. Jock taxes, including New York’s nonresident athlete tax, affect those who travel with the team. This means that trainers, backup players, and coaching staff are all on the hook for a tax bill during away games. These professionals also have the same tax advantages to compare in choosing their teams. However, unlike many of their higher-paid counterparts, supporting staff do not get the same advantage out of hiring the professional tax help necessary to comply with different state laws. Where one player may have hundreds of thousands to pay to a state, a trainer may have a minimal tax bill that requires a vastly more expensive accountant to determine.
Taxes are a reality for everyone. The tax bill difference between states should never be ruled out of consideration for even the highest-paid players. The money generated from player taxes is an important revenue stream for some states and is not something they are willing to overlook. Unfortunately for the many who are not making millions from professional sports, there is a complicated tax burden that requires costly professionals to prepare and provide planning services.
[1] https://nypost.com/2022/10/03/tyreek-hill-picked-dolphins-over-jets-due-to-state-taxes/
[2] https://www.taxpayer.com/media/MajorPenalty-October2015.pdf
[3] 20 NYCRR 132.22
[4] https://www.politico.com/news/2022/03/28/buffalo-bills-stadium-new-york-taxpayers-850m-00020872
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