Other | Mar 23, 2023

The Jock Tax: What is it and how does it work?

By Harry Bazley

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Professional athletes are among the highest-paid individuals in the world. In the United States, athletes who travel to compete in games or events are subject to a tax commonly known as the "jock tax." This tax is unique to professional athletes and is a significant source of revenue for state governments.

What is the Jock Tax?

The Jock Tax refers to a tax that professional athletes pay when they earn money while playing in a particular state or city outside of their home state/resident state. These taxes are based on the amount of income earned by the athlete while playing games, participating in events, and practicing in that particular state or city.

The Jock Tax has become a significant source of revenue for many states and cities, particularly those with professional sports teams. However, it can also be a financial burden for athletes, who may have to file tax returns in multiple states and pay taxes on a portion of their income earned in each state where they play or train.

This tax exclusively applies to all US citizens that work in several states but the percentages tend to be very small, so this tax mostly affects people who earn a large amount, such as athletes that play in major sports leagues.

How Does the Jock Tax Work?

When an athlete travels to a different state to play a game or event, they become subject to that state's tax laws. The athlete's income earned from playing in that state is subject to state income tax. The jock tax applies to all types of professional athletes, including football, basketball, baseball, hockey, golf, and more.

The jock tax is calculated based on the athlete's income earned from playing in a particular state. This income can include salary, bonuses, and endorsements earned by the athlete while playing in that state.

How is the Jock Tax Calculated?

The specific calculation of the Jock Tax can vary depending on the tax laws of the specific jurisdiction or state where the athlete is earning income. However, the general principle is that the athlete's taxable income is determined by multiplying their total income by the ratio of the days spent or games played in that state to the total number of days the athlete worked during the year.

For example, suppose a professional NBA player earns a salary of $10 million per year and played in 82 games during the regular season and NBA finals. If the team played 41 games at home and 41 games on the road, and the player spent 5 days playing games against the Los Angeles Lakers in California (which has a jock tax rate of 13.3%) the calculation of the player's Jock Tax liability would be as follows:

  • Total income = $10 million

  • Ratio of days played in California = 5/82 = 0.06097560975

  • Taxable income in California = $10 million x 0.06097560975 = $609,756

  • Jock Tax liability in California = $609,756 x 13.3% = $81,097

The History of the Jock Tax

The first state to implement the jock tax was California in 1991, followed by New York in 1995. Other states quickly followed suit, including Illinois, Pennsylvania, and Maryland. The tax was initially met with resistance from professional sports leagues and players, who argued that it was unfair and amounted to double taxation.

However, the courts eventually ruled that the jock tax was constitutional, as it was based on the income earned by the athletes in each individual state. The tax has since become a common practice in the United States, and many other countries have also adopted similar taxes on professional athletes.

The jock tax has been a significant source of revenue for many states and has helped to offset the costs associated with hosting professional sports events. However, it has also been a source of controversy, as some argue that it unfairly targets professional athletes and can be difficult to administer and enforce.

Who Benefits from the Jock Tax?

The revenue generated from the jock tax benefits the state or city in which the athlete performs. It can be used to fund various programs and services, such as education, infrastructure, and public safety. The tax also helps to level the playing field between local businesses that pay taxes and the visiting sports teams that generate revenue without contributing to the local economy.

Michael Jordan vs The Jock Tax

In the 1990s, the tax became a hotly debated issue, with many athletes complaining that they were being unfairly targeted.

In the midst of this debate, Chicago Bulls superstar Michael Jordan found himself at the centre of controversy when he reportedly sought revenge on the state of Illinois for imposing a jock tax on his earnings.

According to reports, Jordan was angry about having to pay a significant amount of money in jock taxes to the state of Illinois. He reportedly felt that the tax was unfair and that he was being targeted because of his high profile as a professional athlete.

In response, Jordan allegedly lobbied the state legislature to repeal the jock tax. However, his efforts were unsuccessful, and the tax remained in place.

Despite his failure to have the tax repealed, Jordan's actions drew significant attention to the issue of jock taxes and helped to raise awareness about the impact they have on professional athletes.

Part of the awareness came from John Cullerton, a freshman state senator in Illinois, who doesn’t remember exactly how he heard about the jock tax, was inspired to make a “defensive move.”

If they’re taxing Michael Jordan, but we’re not taxing Magic Johnson, it’s not fair.

John Cullerton

In the summer of 1991, a tax bill was passed in Illinois that imposed a tax on visiting athletes, but only if they originated from a state that also had a jock tax. The law received widespread attention and became known as 'Michael Jordan's Revenge.'

Remote Work & The Jock Tax

It's not just athletes that can be subject to the jock tax, it could be anyone...

In the 1990s, Philadelphia not only imposed a municipal tax on athletes but also enforced it on doctors and lawyers who travelled to the city. Similarly, approximately half of the 41 states that impose income tax require individuals to pay taxes for working a single day in the state, including visitors.

Usually, low-income earners are not targeted as states tend to monitor high-income earners such as athletes with publicly available schedules. However, as remote work becomes more prevalent, this trend could shift.

So, if you plan on having a career in the NBA, bear in mind that you'll need to pay more tax percentages just for playing away games, otherwise a work from home job might be your best option!