The March Madness Jock Tax

The NCAA National Championship is just around the corner! This year the Final Four will be Michigan State vs. Texas Tech and Virginia vs. Auburn on Saturday, April 6th. The Final Four tournament as well as the National Championship game will be held at the U.S. Bank Stadium, located in Minneapolis, Minnesota.

What do taxes have to do with the upcoming tournament?

Did you know that any athlete, coach, trainer or staff that is being paid to travel, participate in a game or that wins money for participating in a game has to pay what they call a “jock tax” for the state in which they compete? The jock tax also applies to any of the practice games that take place before the actual big game. While the athletes in a college game like the ones mentioned above don't have a salary, the coaches sure do!

A few factors come into play when determining the jock tax. First, the number of 'duty days' for each state must be calculated. Duty days are the number of days the coach had 'income-related work' in a different state. After calculating the number of duty days for each state, they are divided by the coach's number of working days throughout the year. Once the duty days and how much of their salary they earned while in each state has been determined, the tax bracket their total salary falls under for each state must be specified. Usually, these coaches are being paid millions, and as you can see by the coach salaries outlined below from the NCAA Final Four Teams, they typically fall under the highest tax bracket.

Mich. State - Tom Izzo: $4,157,562

Virginia - Tony Bennett: $4,150,000

Texas Tech - Chris Beard: $2,800,000

Auburn - Bruce Pearl: $2,600,000

https://sports.usatoday.com/ncaa/salaries/mens-basketball/coach/

This year's NCAA National Championship location, Minneapolis, Minnesota, has the second highest jock tax rate of 9.85 percent. California still holds the lead at 13.3 percent. On Saturday, each coach will be taxed 37 percent for federal taxes and 9.85 percent for the Minnesota jock tax, for a total of 46.85 percent. However, don’t forget about all the other taxes they are required to pay: social security tax, Medicare tax, home state income tax, and other local taxes.

If the Michigan State basketball team traveled to Minneapolis on Monday, April 1st and practiced every day until they competed on Saturday, that would be six working days for coach Izzo. If they won the game on Saturday and had a small practice on Sunday to prepare for the Championship game on Monday night, then coach Izzo would need to add two more working days when calculating his taxes. Izzo would experience eight duty days in Minnesota. The information from this example would mean Izzo would earn $127,924 from his salary for coaching in Minnesota for eight days. He would then be taxed $12,600 for the Minnesota Jock tax leaving him with $115,323 to be taxed as usual.
*This paragraph is entirely hypothetical. We cannot guarantee this information.

Fortunately, not every state has an income tax or jock tax. In 2016 Tennessee repealed their jock tax imposed on non-resident teams competing in their state. When players or coaches are considering working for a new team, no-income-tax states are sometimes preferred because they do not have to pay income tax or jock tax on their home game earnings or their endorsements. If a coach is offered the same salary from a team in Tennessee and a team in California, they will receive much more of their earnings if they choose Tennessee. More frequently, teams may compensate for higher state income tax rates by offering a more substantial salary.

Championship games are more beneficial to teams when they are held in no-income-tax states. In 2017, the New England Patriots and Atlanta Falcons competed in the Superbowl LI in Texas, a no-income-tax state. Because of this, both teams were able to keep the majority of their earnings from the Superbowl.

Golf players are also wary of the taxes imposed on them in other states. In 2018, Phil Mickelson and Tiger Woods played 'The Match' which may have conveniently been in Nevada, another no-income-tax state, for a reason. With a purse of 9 million dollars, there was much more to lose. Unfortunately for Mickelson, when he won he still had to pay income tax from his home state California. However, if Woods would have won, he would not have had state-income tax from Nevada or his state of residency, Florida, both being no-income-tax states.

As one can see, the location of these monumental championships makes a huge difference when it comes to taxes. And in the case of some athletes or coaches, so does their residency. It is common knowledge that NCAA coaches, professional athletes, and trainers typically earn over a million dollars per year. What most aren't familiar with is just how much of that money goes to taxes. Using our PaycheckCity calculators, the jock tax can be added as a custom deduction to determine how much it might cost an athlete or a coach competing in a game. While we can't guarantee our March Madness bracket is spot on, PaycheckCity will make sure the tax bracket is!