The Taxing World of NFL Players’ Finances

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Let me be the first to say, I wish I had these tax problems from making hundreds of thousands or even millions of dollars a year. :)

Btw there's a Dominique Easley mention near the bottom of the article.
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https://www.si.com/nfl/2018/04/17/nfl-players-tax-filings-athletes-salaries

The Taxing World of NFL Players’ Finances
By JACOB FELDMAN

Brock Osweiler’s 2016 tax filing was about as simple as you can get for an NFL player: With the Texans he played home games in income-tax-free Texas and paid other states based just on the number of days he spent there.

But in 2017, he was traded to Cleveland, cut after the preseason and picked up by the team that drafted him: The Broncos. The Browns still paid his $16 million contract, but it was Denver that used him in seven games. So what did his tax bill come to? The experts say ... they’re not sure.

The move to Ohio, land of the 5.4% income tax—pretty average, as state rates go—hurt the QB’s wallet. Spending a month in Berea for training camp cost him roughly $150,000. But even though the Browns continued to pay almost all of Osweiler’s salary, the Buckeye State can’t tax Osweiler for time spent elsewhere. (As Ohio Department of Taxation lawyer Matthew Dodovich said in a four-paragraph explanation: “Ohio does not get to tax more of the income simply because it is paid by an Ohio source; the key to taxation is where the income was actually earned.”)

That means that even though Denver paid just $775,000 of Osweiler’s 2017 salary, he still likely owed the state of Colorado roughly $600,000, with another $150,000 owed to the states in which he played: California, Missouri, New York... That is, assuming he maintained Texas residency status throughout his odyssey.

Oh, and one CPA suggests that Ohio and Colorado could both claim they deserve that $600,000, forcing an appeal and possible federal court case. The result could depend on whether the Browns paid Osweiler a lump sum before he left Ohio, or if he continued getting weekly payouts.

Even for players who aren't traded or cut, tax regulations can be complex—and costly.

The Cowboys spending part of their training camp in tax-heavy (Oxnard) California rather than Texas, for instance, cost Dez Bryant close to $10,000 per day. Even the Dolphins’ decision to train in Oxnard following Hurricane Irma in September likely cost Ndamukong Suh between $50,000 and $100,000.

Imagine that Blake Bortles’s Jaguars had upset the Patriots in the AFC championship game in January. (Stay with me here. . . .) If they’d then lost in Super Bowl LII, the QB would have collected $102,700 in playoff salary after accounting for the 37% federal tax take. But then he’d also have owed $74,700 to Pennsylvania, Massachusetts and Minnesota.

One All-Pro’s 2016 filing was 400 pages long. He spoke with his tax accountant on a near-daily basis, calling before scheduling a bye-week vacation to income tax-free Florida that saved him $20,000. And this is a guy who has played on the same team his entire career.

Is your head spinning yet? This complexity is all part of the problem, says Jared Walczak, a state tax expert at the Tax Foundation, a D.C. think tank. And every traveling member of a team—from broadcaster to trainer—has to file all of these separate returns.

What makes players’ taxes interesting is the fact that NFLers don’t just pay where they live. They pay where they play and, most notably, where they practice.

The formula is simple: total salary multiplied by days spent in a given state multiplied by that state’s income tax rate, all divided by the number of days in the season. So each for each day Bryant spent in California he owed the state ($13,000,000 x 1 day x 13.3% tax rate / 170-day season).

As for the recent tax reform, the top-line federal rate cut (from 39.6 to 37%) will help players, but The Tax Cuts and Jobs Act limits filers deducting all state tax payments from their federal taxable income. That will hurt players—and teams—in high-tax states like California, Minnesota and New York—we're talking a $500,000 difference for Derek Carr, for example.

For lower-tier players with lesser salaries, the bigger downside is the curtailing of itemized deductions, which previously added up to five-digit savings on union dues, training fees, and other costs.

Look at all of this from the state’s side and the numbers grow exponentially. Minnesota, site of Super Bowl LII, took in $137 million from non-resident athletes across the four major sports in 2015. That same year, California collected $58 million from NFL players not on the Raiders, 49ers or Chargers. Only MLB personnel (playing against the five Cali squads) contributed more.

Just how important is this revenue for the states? Important enough that the California Franchise Tax Board, Minnesota’s Income Tax & Withholding Division, and similar organizations in other states each make it part of some employee’s job to closely follow the athletic calendars of leagues like the NFL. (Check that: employees, plural, in some cases.

This used to be one person’s responsibility in California, but as the amount that state took in from visiting athletes grew 50% between 2010 and ’15, the task was spread across multiple employees.) “California is incredible,” says Sean Packard, a CPA with the Twitter handle @AthleteTax. “If you’re off a slight bit, they’ll send you a notice.”

That revenue is also important enough that a proposed bill eliminating states’ ability to charge non-resident employees for short stints within their boundaries includes the phrase, “For the purposes of this bill, the term ‘employee’ excludes: professional athletes.” (The bill passed in the House this fall.)

The non-resident athlete tax (290.17 Subd. 2 [a] [2] in the Minnesota tax code) even has a sexy nickname, “the jock tax,” and a star-studded history. Though the practice dates back to the 1960s, states started getting more aggressive in ’91, after California hounded Michael Jordan for the taxes he owed following an NBA Finals victory over the Lakers. The Illinois Department of Revenue subsequently began targeting visiting California athletes in a move dubbed “Michael Jordan’s revenge”... and the Tax Wars were on.

Some players have fought back against the statutes. In 2015, for instance, retired NFLers Jeff Saturday (Colts and Packers) and Hunter Hillenmeyer (Bears) got a Cleveland-specific jock tax ruled unconstitutional. But a larger segment of players simply do their best within the current rules, even as the act of filing taxes has grown increasingly complex.

“It’s a little scary,” one Pro Bowler’s CPA explains, for a player to discuss his tax strategies because it could “open them up to additional state or IRS scrutiny.” Another agent suggests that NFL players are audited at 12 times the national rate. (An IRS official points out that this would be in line with the recent rates for any millionaire, compared to the rate of someone making less than $200,000.) Given the millions upon millions of dollars at stake—and the gray areas engulfing a player’s tax liabilities—silence might actually be golden.

Major League Baseball secured an exemption two decades ago from state taxes for players who spend a month in Arizona for spring training. Auto groups have typically been able to get jock tax-like rules voided for cross-country truckers. (Could you imagine?) But the NFL, to this point, has not seemed interested in that type of advocacy role, or in publicly factoring in the tax implications of Super Bowl, Pro Bowl or training camp locations.

Teams often miscount the days spent in each state, several accountants tell SI, or set players’ withholdings too low, starting with signing bonuses for rookies. The NFLPA plays this all fairly hands-off, too, though the organization helped in legal arguments for Saturday and Hillenmeyer. (Here Hillenmeyer says status quo is just fine; he wouldn’t want teams meddling in his finances more than they’re required to.)

Defensive end Dominique Easley would at least like someone inside the Rams’ Thousand Oaks facility to provide tax advice. When he entered the league he says he “didn’t know anything about taxes.” Four years in (he spent seasons one and two in New England), with innumerable tax deductions for his pedicures behind him—they’re considered medical expenses, to prevent turf toe, he explains—he’s starting to pay closer attention to all the little things, which can quickly add up.

After the NFL schedule is announced each spring he scans his team’s list with an eye on how many trips he’ll be taking to tax-free states. (In 2017: four of eight. Not too shabby.) Last year he tried to hand down some of the tips he’s learned to rookie tight end Gerald Everett, but Easley admits that both players are outliers in their attention to detail.

There’s less locker room chatter about taxes than there used to be, estimates Tim Johnson (@cpa4athletes), a 12-year sports accounting veteran. Whether that’s due to a greater respect for the nuances of tax codes, or out of some fear created by the drum beat of news stories about too-good-to-be-true agent scams, players mainly stick to their experts’ advice.

Easley says he learned everything he knows in this realm from his accountant, Jarrett Perry, who frequently gets texts of gratitude from his clients. He gets plenty more messages filled with questions. The NFL season may be long over, but for the CPAs to the stars, this is primetime.
 

Turducken

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A 13.3% CA income is going to be an issue in retaining players. State of Washington has no income tax. On a $20m/yr deal that's a $1.33m bonus for signing with the Seahawks.
 

bubbaramfan

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No worries for NFL players who can afford tax consultants who know how to hide money in tax shelters, claim deductions, and just plain cheat the system. Easley's pedicure is a perfect example. "innumerable tax deductions" says it all.

Most rich people don't pay a dime in taxes when its all said and done.
 

Jacobarch

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A 13.3% CA income is going to be an issue in retaining players. State of Washington has no income tax. On a $20m/yr deal that's a $1.33m bonus for signing with the Seahawks.

Yeah but who wants to live in Seattle??? Place sucks 9 months out of the year .
 

dieterbrock

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A 13.3% CA income is going to be an issue in retaining players. State of Washington has no income tax. On a $20m/yr deal that's a $1.33m bonus for signing with the Seahawks.
Still have to play 2 games a year in Cali, and pay taxes there
 

Jacobarch

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Still have to play 2 games a year in Cali, and pay taxes there

Is that how it works? Pretty sure their checks are cut from corpercor hq in whichever state it's in. Don't think it matters where you play the game.
 

dieterbrock

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Is that how it works? Pretty sure their checks are cut from corpercor hq in whichever state it's in. Don't think it matters where you play the game.
Yeah, its in that article. "What makes players’ taxes interesting is the fact that NFLers don’t just pay where they live. They pay where they play and, most notably, where they practice."
They have to pay income tax in every state they play in
 

bubbaramfan

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That article is misleading and on some points not at all true. Over the road truck drivers who drive through many states in the course of a year don't have to pay taxes in the states they drive (work) through. Just the state they live in. The company they work for may even be in a different state.
 

bubbaramfan

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I showed this article by Jacob Feldman, a writer for Sports Illistrated, to my bro-in-law, who is a tax lawyer here in Calif. He is still laughing his azz off.
 

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  • Thread Starter Thread Starter
  • #11
https://smartasset.com/taxes/NFL-jock-taxes

What Do NFL Players Pay in Taxes?
Nick Wallace

As high earners, NFL players face top tax rates at the federal and local level. In some places, these marginal rates exceed 50%.

But it doesn’t end there. In addition to paying taxes to the IRS and their home team’s state, many professional football players have to pay taxes to every single state in which they play a game, the so-called “jock tax.” That can mean filing as many as 10 different tax returns and coughing up as much as 50% of their salary and bonuses in taxes.

https://www.marketwatch.com/story/t...-tax-form-can-be-as-big-as-a-bible-2016-07-27

NFL players receive 16 checks over the course of the 166-day season. And each away-game check can be different, based on the income tax rate of the state they’re playing in.

The jock tax originated in the late 1980s and early 1990s because of basketball superstar Michael Jordan, says Goldstein. Jordan was at the peak of his career and making a lot of money as a member of the Chicago Bulls, and the state of California said that since some of Jordan’s income was earned within its borders, the state should get a cut of it.

https://www.hrblock.com/tax-center/income/wages/the-jock-tax/

How do jock taxes work?

Generally, a state taxes all income earned by residents of the state. Other states may only tax nonresident income earned in that other state.

States with jock tax laws do not tax nonresident athletes at a higher tax rate; rather, jock taxes affect the amount of an athlete’s income that is subject to state or local taxes. Think of your annual salary as a pie; each state where you worked is trying to get the largest slice they can in order to charge you more in state taxes.

In addition to their annual base salary, performance and signing bonuses are included in a player’s income pie if the conditions to receive the bonuses were met or partially met while performing services in that state.
 

Turducken

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Yeah but who wants to live in Seattle??? Place sucks 9 months out of the year .
Who wants to live in Green Bay or Minnesota? A lot of talented players. My point is that this is an issue when we compete for free agents. Easier to draft or trade to get a player into a high tax state because they can't refuse. Gotta wonder if this isn't making it harder to retain AD. He would net $1m/yr+ playing in Texas, Florida, Tennessee, Arizona or Nevada. By 2020 one fourth of NFL teams will have that advantage over CA teams.
 

DaveFan'51

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Nothing gets me jacked more about football than tax stories.
It all makes me .... :dizzy::confused: I'm glad I don't have these Problems!! IF I ever Won the Lottery, I would see a Tax Attorney BEFORE I ever Cashed in the Ticket!!(y);):D
Especially since I live in California!!!
 

bluecoconuts

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Oh poor babies.

Y'all have enough money to hire a decent CPA. Just don't go to H&R Block, instead ask your agent to get you someone, that's their job.
 

Kevin

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Who wants to live in Green Bay or Minnesota? A lot of talented players. My point is that this is an issue when we compete for free agents. Easier to draft or trade to get a player into a high tax state because they can't refuse. Gotta wonder if this isn't making it harder to retain AD. He would net $1m/yr+ playing in Texas, Florida, Tennessee, Arizona or Nevada. By 2020 one fourth of NFL teams will have that advantage over CA teams.
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Corbin

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I showed this article by Jacob Feldman, a writer for Sports Illistrated, to my bro-in-law, who is a tax lawyer here in Calif. He is still laughing his azz off.
I don’t get it? So they don’t pay taxes on places they play? Just where the organization is?