What Are Jock Taxes and How Do They Work?
Understand the nuanced tax obligations for non-resident pro athletes and team personnel, including how income is allocated across multiple jurisdictions.
A “jock tax” is an income tax that states and some cities levy on non-residents who earn money within their borders. While applicable to many traveling professionals, these taxes are most consistently applied to professional athletes because the public nature of their salaries and schedules makes it straightforward for tax authorities to assess the amount owed. This tax ensures that as high-income individuals earn money in a location, they contribute to that location’s tax base, regardless of where they officially reside.
The tax applies to the portion of an individual’s income earned while performing services in the taxing jurisdiction. For every away game, a portion of a player’s salary is subject to the income tax of that state or city. The result is a complex tax situation where an athlete may be required to file numerous non-resident state and local income tax returns each year, a standard practice in nearly every jurisdiction with a major professional sports team.
The Origin of the Jock Tax
The widespread use of the modern jock tax began after the 1991 NBA Finals, when the Chicago Bulls, led by Michael Jordan, defeated the Los Angeles Lakers. Following the series, California collected state income taxes from the Bulls players for the income they earned playing in Los Angeles.
This action prompted a direct response from Illinois, which passed its own legislation to tax visiting athletes whose home states taxed Illinois-based players. This retaliatory law became known as “Michael Jordan’s Revenge.”
It set a precedent that other states and cities soon followed, creating a domino effect across the country. This reciprocal approach is why the jock tax became a standard part of the financial landscape for professional sports.
Who Pays the Jock Tax
The “jock tax” applies to more than just athletes, encompassing a wide range of personnel who travel and work as part of a professional sports organization. Anyone whose job is integral to the team’s performance on the road can be subject to the tax.
Affected individuals include:
- The entire coaching staff
- Athletic trainers
- Equipment managers
- Team physicians
- Scouts
- Broadcasters who travel with the team
The tax applies regardless of income level, affecting not just multimillion-dollar superstars but also staff members who may earn salaries closer to the national median income.
How Jock Taxes are Calculated
The most common method for calculating the tax is the “duty days” formula. A duty day is any day an individual is required by their team contract to be present for work, which includes activities beyond just the games themselves. These mandatory workdays include regular season and playoff games, team practices, meetings, conditioning sessions, and travel days for away games. The total number of these days in a season becomes the denominator for the tax calculation.
The formula divides the number of duty days spent in a specific state by the total number of duty days in the season. This fraction is then multiplied by the athlete’s total apportionable income. For example, if a player has 200 total duty days and 10 were in a particular state, that state can tax 5% (10 divided by 200) of the player’s income.
Some jurisdictions use a “games played” method instead, which uses the number of games played in the state relative to the total games in a season. However, the duty days model is more prevalent because it captures a broader scope of work-related activities. Each state may also have slightly different definitions of what constitutes a duty day, which adds to the filing complexity.
Income Subject to the Tax
The duty days allocation percentage is applied to a specific base of income. The primary component of this base is the player’s annual salary. The treatment of other compensation can be more complex and varies between jurisdictions.
Signing bonuses are a point of contention. Some states include a prorated portion of a signing bonus in the apportionable income, viewing it as compensation for future services. Other states may source the entire bonus to the athlete’s state of residence if the contract does not tie it to future performance.
Performance and playoff bonuses are also included in the income calculation and are allocated using the duty days formula. If a bonus is tied to a specific achievement, like winning a championship, the duty days for those playoff games are important for the allocation.
Endorsement income is treated differently from salary and bonuses. Income from endorsements is not allocated using the duty days formula and is instead sourced to the athlete’s state of legal residence. This is because endorsement activities are considered separate from team services, unless a contract explicitly ties the endorsement to team activities.