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Taxation can be a thorny issue for pro athletes the world over, especially if they’re liable for the “jock” tax.
Athletes can’t seem to avoid issues with the taxman the world over.
A who’s who of the sporting world has had to face up to hefty unpaid tax bills – Mike Tyson (owed over $2 million to the IRS), John Daly (over $1 million), even baby-faced Lionel Messi was found guilty of tax fraud.
Fans (rightly) have little sympathy for exorbitantly paid athletes from all sports. One estimation from the US makes the gap look stark – average workers make $51,000-$300,000 a year, but professional athletes make between $2.1-$6.5 million.
Yikes.
Yet America is home to even more fiendishly difficult tax issues facing athletes who play professional sports here – the Jock Tax.
And Michael Jordan is why it exists. Or is he?
What is the Jock Tax?
The jock tax is insanely simple. It essentially enables US states to tax an athlete for the time they spent competing in a state. So, think of a team traveling to California to play an NFL game; the athlete will be charged for the time spent competing in the state. In the case of the NFL, one athlete may have to visit the state multiple times throughout the season, thus, adding to their tax bill.
The critical difference with the jock tax is that it is, in effect, an out-of-state tax. In the US, people will pay state taxes on all income earned in the state they reside in.
Michael Jordan didn’t create the jock tax
The modern myth of the jock tax is that it was created by Michael Jordan and his utter demolition job of California’s beloved Los Angeles Lakers in 1991.
It’s a nice story, but not totally correct.
In a great piece in the San Diego Union-Tribune, they trace the tax back to as far as 1968 for former Chargers player Dennis Partee due to a legal case he initiated to dispute the amount of tax a non-resident athlete could be charged when playing (or working if you view it that way) in a state.
Yet Jordan comes to the fore in really turbocharging the jock tax collection and expansion in 1991.
Jordan’s role in making the jock tax what it is today
The year is 1991. Michael Jordan’s first NBA finals against California’s basketball dynasty, the LA Lakers. In game five of the series, Jordan powers the Chicago Bulls to their first NBA Championship with a 108-101 win in Inglewood, California.
He celebrates with his teammates and the Larry O’Brien trophy. His destiny to be the best to ever do it has just clinched its first notch on the road to greatness. He arrives back in Chicago, and he arrives back to a big fat tax bill from the state of California.
“Jordan’s revenge” was swift in coming and you can bet he “took that personally”. In direct response to Calfornia’s move, the State of Illinois also launched its own jock tax to levy taxes on the Lakers’ team.
The effect of this tit-for-tat?
Today, almost every state and many large municipalities that has professional sports teams have a jock tax in place for visiting teams and players.
So how bad in the tax situation if you travel all over the US as a pro athlete? NBA pros will have to submit an estimated 16-20 tax returns, while MLB athletes may need to file 20-25 returns in a single calendar year.
Just four states in the US do not have a jock tax in place: Florida, Texas, Washington state, and Washington, D.C.
Some examples of the jock tax in action
Some might scoff at the idea of millionaire athletes being charged a fraction of their salary, but consider that not all players are paid super max contracts in the NBA or MLB’s salary cap-less contracts. Or worse, for athletes in the MLS, a sport still very much behind America’s other favorite pastimes, players earn significantly lower on average than the average NFL salary (of just over $2 million).
But in practice, when we look at some superstars of sports in the US, what amount of tax are they realistically due to pay thanks to the jock tax?
- The Super Bowl – Denver Broncos: The greatest show on turf, with millions and millions tuning in to find out which NFL team is the best. The winners will not only get the Lombardi trophy but also, a tax bill depending on where the game is held. For example, the Denver Broncos Super Bowl win in 2016 cost each team member $17,000 in taxes for their victory over the Carolina Panthers. For just sixty minutes of work, each Bronco was charged $283 per minute of the game.
- The Super Bowl – Carolina Panthers: Not only did the Panthers get taken to the cleaners by the Broncos on the field, but they also left completely empty-handed from that Super Bowl with each player owing $7,000 of taxes to the state of California.
- NFL player: An individual player in the NFL is likely to pay roughly $350,000-$450,000 a year in jock taxes. This handy comparison breaks it down nicely from the 2018 season. Interestingly, in some states, the jock tax due is nearly the same as the player’s state taxes where they reside, highlighting how the jock tax can really stack up.
Does It exist anywhere else?
The jock tax is solely an American invention to this day. The UK and other countries haven’t decided to institute anything similar to the US example. Even Canada, with leagues that partner with US bodies, including MLB, NHL and MLS, has avoided this. In fact, Canadian teams’ players are not subject to jock tax when coming to the US for games.
Pittsburgh strikes down the jock tax
Much like the tax code itself, the jock tax hasn’t stayed static. In 2022, a court in Pittsburgh struck the law out. Non-Pittsburgh athletes were required to pay 3% of their income which was earned while playing at the main stadiums in the city. Yes. It got that granular and the judge ruled it an unconstitutional tax in the state.
When a publication like MarketWatch asks “Why so many sports stars run into tax troubles?” you know there’s an issue there. Even ex-NFL player Jason Bell told Business Of Sport the problems athletes everywhere have with financial wellness. Read more about that here.
For some though, the decision can be an easy one. When asked why he chose the Miami Dolphins over the New York Jets, wide receiver Tyreek Hill had one simple answer.
“Taxes.”
