In the world of sports and entertainment, professional athletes and entertainers enjoy recognition, fame, and money. However, in many cases, along with these benefits also come tax obligations that celebrities cannot evade and, if they do, could face serious consequences.
Athletes and entertainers often face a unique set of taxes levied on their income, which differ from the taxes paid by ordinary citizens. These excise taxes are intended to capture a portion of the revenue generated through their activity in different jurisdictions. One such tax that has caused some attention is the “jock tax“.
How does Jock Tax work?
The Jock tax, also known as the “athlete tax” or “entertainer tax” is a form of income tax imposed on professional athletes and entertainers based on the income they generate while performing or competing in a specific jurisdiction.
The Jock tax is imposed in the State or city where the event or performance occurs rather than the State of residence of the athlete or entertainer. Income generated in that jurisdiction is deemed attributable to the activity performed there. In addition to salaries, the Jock tax also covers bonuses, endorsements, appearance fees, and other income related to the athlete’s or entertainer’s participation.
Jock tax rates vary by jurisdiction and the amount of income earned. Some jurisdictions have progressive rates, meaning athletes or entertainers with higher incomes may be subject to a higher tax rate.
What type of tax is Jock tax?
The jock tax is a form of state income tax rather than a separate or distinct tax category. This tax is a unique application of state income tax laws directed at the income of professional athletes and entertainers temporarily in a particular state for competition or entertainment purposes.
What makes you a “jock”?
The term “jock” is often used to describe a sports person. Some states do not charge jock tax to those who visit their territory and make money in them. However, the jock tax is not limited to athletes or artists. It is a colloquial term for the income taxes levied on visitors to a city or State who earn money in that jurisdiction.
The jock tax can apply to anyone who makes income in a state or city where they do not reside, including athletes, coaches, and other sports professionals who travel to other states or cities for work, such as entertainers and celebrities.
What states have Jock taxes?
Most American states charge a percentage of the total earnings of the celebrity or athlete, whose money stays in the State where the presentation took place. Below, we show you a table with the percentages of the jock tax rates according to each State.[wpdatatable id=374]
How is the jock tax calculated: Steps and example
The jock tax is calculated by determining the portion of an athlete’s income taxable in a particular state based on their “duty days” or “duty-game ratio.” The calculation involves the following steps:
- Calculate the athlete’s total income earned during the taxable period (including salaries, bonuses, endorsements, and other sources of income).
- Identify the number of duty days (days spent in a particular state for work-related purposes) or games the athlete participated in throughout the taxable period.
- Determine how many duty days or games were spent in each State or jurisdiction. This involves keeping track of the athlete’s schedule and the locations of their games or events.
- Divide the duty days or games spent in a specific state by the total number of duty days or games played during the taxable period. This will give you the ratio or percentage of the athlete’s time spent in that State.
- Multiply the duty-game ratio by the athlete’s total revenue to determine the taxable amount in the specific State. This reflects the portion of the income attributable to the State based on the athlete’s presence or economic activity there.
- Finally, don’t forget to consider any state-specific rules, exemptions, deductions, or credits that may apply to calculate the final tax liability in each jurisdiction.
NOTE: This calculation may vary due to each state’s laws, regulations, and tax rates.
Jock tax example
Assume a professional basketball player plays games in several states throughout the season and earns $10 million. During the taxable period, he played 82 games, of which 15 were in New York. To calculate the jock tax due in New York, the portion of income attributable to each State must be determined based on the duty-game ratio.
Following the New York example, the duty-game ratio would be 15 games played in New York divided by 82 total games played. This results in a ratio of approximately 0.183, which means that the basketball player would have to pay roughly $1.83 million of his income in New York, which would be subject to taxation.
Which states don’t charge jock tax?
The concept of the jock tax is that athletes or celebrities who perform shows and participate in sports competitions in a State must pay taxes on that income to that State. But some states do not charge jock tax to those who visit their territory and make money in them.
There are only 9 states that don’t charge jock taxes because they do not have a state income tax in general: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
How Jock Taxes Affect Professional Athletes’ Salaries?
The jock tax is detrimental to athletes because it is money deducted from their salary, unlike any other worker, who must only pay taxes for each State’s tax obligations. In other words, by having a higher tax liability, athletes must keep a portion of their income to pay the tax obligations of the states they visit to compete.
On the other hand, professional athletes must comply with each State’s fees, laws, and regulations, which may vary. Thus, most athletes often need the help of experts (which is not for free) to accurately calculate their tax obligations and ensure compliance with jurisdiction-specific rules.
- Pompliano, Joe. “Why Athletes Pay Taxes In Every State They Play In.” Huddle Up | Joe Pompliano | Substack, Huddle Up, 17 Apr. 2023, https://huddleup.substack.com/p/why-athletes-pay-taxes-in-every-state.
- Probasco, Jim. “9 States With No Income Tax and the Lowest Tax Burdens.” Investopedia, Investopedia, 7 Feb. 2010, https://www.investopedia.com/financial-edge/0210/7-states-with-no-income-tax.aspx.
For years I have studied American finance regulations. All the information in this blog is sourced from official or contrasted sources from reliable sites.
Salesforce Certified SALES & SERVICE Cloud Consultant in February 2020, Salesforce Certified Administrator (ADM-201), and Master degree in “Business Analytics & Big Data Strategy” with more than 13 years of experience in IT consulting.