Jock Tax & Duty Days - The MOST important tax savings opportunity for an NFL player
If you are an NFL player, you are likely familiar with the jock tax. If you are about to be drafted in the NFL, you will become familiar with this quickly. The “jock tax” is a state and local tax that is imposed on the income you earn as an NFL player for games played within a particular state and/or city.
The jock tax first came into existences in the 1970s but became widely used in the 1990s, thanks to a guy by the name of Michael Jordan. States and cities began to see the potential revenue that could be generated from taxing the biggest athletes for playing in their cities. For a state like California, the jock tax can generate over $200 million a year in tax revenue.
The way the jock tax works is relatively straightforward. As an NFL player you are typically taxed based on the number of games you play in a particular state and/or city. Here is an example:
Your salary for the season is $5 million.
You play for a team in California and end up playing 9 games in the state, where the state jock tax is 13.3%.
You could owe California approximately $352,000 in jock taxes to the state of California. This doesn't include city taxes you might owe.
The straightforward nature of the calculation has a lot more complexity under the hood. States like to make this simple by saying the tax is based on the number of games you play in the state. NFL teams by product then report your income on your W2 in this manner. The reality is, you are only liable for taxes owed in a state and/or city based on the actual number of days you worked in that state or city. These are often called “duty days” or “service days.”
What are Duty Days?
Duty days for an NFL player are the days when you are required to perform services for your team. This includes days when you participate in practices, games, meetings, and other team-related activities. The more duty days a you have in a particular state or city, the more income you will be taxed on in that location.
How does the Duty Day calculation work?
Duty days are used to determine a player's "duty day allocation," which is the percentage of your income that is subject to state and local taxes. For example, if you have 100 duty days in a particular state out of a total of 200 duty days for the season, then 50% of your income will be subject to state and local taxes in that state.
This can be a significant factor; you often play games and practice in multiple states throughout the season. This means your duty day allocation can vary depending on where your team is playing and practicing. It is important for you to keep track of duty days to ensure you are minimizing your tax liability.
What Can Players Do to Minimize their Tax Liability?
There are several strategies that you as an NFL player can use to minimize your tax liability. We already mentioned the number one strategy, ignore what your W2 says and work with our team or a tax professional to track your duty day allocation. This can easily be done on a weekly basis.
The second strategy is just as important. You should consider establishing residency in a state with no state income tax or at least a lower rate. This may not be feasible given your situation. If possible, this can save you hundreds of thousands of dollars. For reference, the following states do not have a state income tax:
Florida – very popular with NFL players – live in the sunshine state and not pay state income taxes!
Finally, most of what we discussed relates to your salary from your NFL team but there is even more to think about and consider related to your endorsement income. You could earn this income by performing duties all over the country, so it is important that you implement strategies to minimize the state and local taxes you pay on this income as well. We touched on one of those strategies in our blog about the Solo 401(k) here.
You can see how vital tracking duty days are for NFL players. Every player’s situation and circumstances are different and change from year to year, so this process must be customized for each player, each year. We are here to help you track these days and implement the strategies discussed above. If you extended your tax return, so you can file in October, please reach out to us for a review of your duty day calculation.