No one looks forward to tax time, and most of us can be grateful that we only have to file in one state for our taxes. The same is not true for professional athletes, who may be taxed in every state where they play. The CPAs and companies that manage payroll for professional athletes are some of the best and brightest around with their extensive knowledge of different states’ rules and regulations. It’s a complex, meticulous process to pay athletes the right taxes every year.
Ultimate Software, a Florida-based provider of HR and payroll solutions understands how in-depth and intricate a professional athlete’s taxes can be. The cloud company names the Texas Rangers and Arizona Diamondbacks among its several professional sports customers. Pat Pickren, Sr. Director Product Strategy at Ultimate Software states, “Athletes in the NBA, NFL, MLB, and NHL may be taxed in dozens of jurisdictions each year, depending on where they play and practice, where their residencies are, and what sports they play.”
To complicate matters further, not all states and municipalities apply the same taxation to professional athletes in the same way. Some areas use the “duty days” method, which takes the total number of number of days spent playing in that location and divides it by the total work days during a season. Fewer use the “games played” method, which takes the number of games played in that particular state or municipality and divides it by the total number of games played in the season. But what is a “working day?” The answer differs. It could be considered a working day if you travel and have an organized team activity. For others, practicing or training at all is considered a working day. In some cases, if you travel, but do not play in the game, taxation does not apply.
Because of how high athletes’ income taxes are, the tax rate of their resident states can have a large impact on what team an individual athlete decides to play for and which state he or she decides to call “home.” Keep this in mind the next time your favorite player starts playing for a new team!
These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.