What Is the Jock Tax and How Does It Work?

The “jock tax” is an application of income tax laws for individuals earning income in states or localities where they are not residents. While often associated with professional athletes, it also affects other traveling professionals like entertainers or remote workers. This tax ensures individuals contribute to the tax base of locations where they generate income, highlighting the complexities of multi-state taxation for highly mobile earners.

Understanding the Jock Tax

The “jock tax” is not a distinct tax category, but a colloquial term for applying state and local income tax laws to non-residents. It gained widespread attention in the early 1990s, notably after the 1991 NBA Finals, when California taxed the earnings of visiting Chicago Bulls players. Illinois subsequently enacted a retaliatory law, often referred to as “Michael Jordan’s Revenge,” which taxed athletes from states that taxed Illinois-based players. This highlights how states aggressively pursue income generated by non-residents within their borders.

The underlying principle of the jock tax is “source income,” meaning income earned from activities performed within a state’s boundaries. States assert the right to tax any income sourced within their jurisdiction, even if the individual is a resident of another state. This principle applies broadly to anyone earning income as a non-resident, but disproportionately impacts professional athletes due to their public schedules and high earning potential. Their frequent travel across state lines for games, practices, and other team activities creates numerous tax obligations in multiple jurisdictions.

The public availability of athlete salaries and team schedules makes it straightforward for tax authorities to identify and assess the tax owed. This transparency, combined with significant earnings, makes athletes a visible target for states seeking to collect revenue from economic activity within their borders. While the term “jock tax” refers to professional athletes, it serves as a prominent example of multi-state income taxation that can affect any traveling professional.

Application to Professional Athletes

The jock tax allocates a portion of professional athletes’ total compensation to each state where they perform services. States use apportionment methods to determine taxable income. The “duty days” method is the most widely adopted approach. Under this method, a player’s total annual salary is divided by their total number of “duty days” in a season, and then multiplied by the number of duty days spent within a specific taxing state.

A “duty day” includes any day an athlete is required to perform services, from pre-season training through post-season play. This encompasses game days, practice days, team meetings, mandatory training, and travel days directly related to team activities. For instance, if an athlete has 200 total duty days in a year and spends 10 of those days in a particular state, that state may tax 5% of their total apportionable income.

While the duty days method is prevalent, some jurisdictions, particularly certain cities, may use a “games played” method. This alternative approach allocates income based on the ratio of games played in a specific jurisdiction to the total games played during the season. However, the duty days method is favored as it more accurately reflects the full scope of an athlete’s work, including non-game activities like practices and training.

The types of income subject to this tax include an athlete’s base salary, performance bonuses, and workout bonuses earned during time spent in a taxing state. Signing bonuses, however, are taxed only by the athlete’s state of residence and are not subject to the jock tax in other states. Endorsement income is not subject to the jock tax unless directly tied to team performance or duties performed in a specific state.

Compliance and Reporting

Navigating the jock tax requires attention to detail and requires professional athletes to file numerous state and sometimes local income tax returns each year. This is because income is earned across multiple jurisdictions, each potentially having its own tax rates and filing requirements. The complexity is compounded by variations in how states define “duty days” or allocate income.

To prevent income from being taxed multiple times, states provide a tax credit for taxes paid to other states. This credit allows an athlete’s home state to reduce its own tax liability by the amount of income tax paid to non-resident states. The credit ensures that an athlete is not double-taxed on the same income, though the credit is limited to the amount of tax that the resident state would have imposed on that income.

Professional sports teams are responsible for withholding state income taxes from player paychecks for the jurisdictions where services are performed. However, these withholdings are not always accurate, and discrepancies can arise due to errors in calculating duty days or applying correct tax rates. This makes meticulous record-keeping by athletes and their financial advisors crucial.

Accurate records of travel itineraries, calendars, employment contracts, pay stubs detailing state withholdings, and documentation of all duty days in each state are important for compliance. These detailed records support tax filings and help ensure that athletes meet their multi-state tax obligations, potentially avoiding penalties from underpayment or overpayment.