This is one of the articles in the KROST Industry Sports & Entertainment Issue, titled “Understanding the Complexities of Tax for Professional Athletes” by Brad Pauley, CPA
Professional Athlete Taxation
Professional athletes are subject to a complex system of taxation that can vary depending on their state of residence, the sport they play, and the level of income they earn. In general, however, professional athletes are taxed on their income from all sources, including salary, bonuses, and endorsements.
State Income Tax
Professional athletes typically file taxes in the state where they play, as well as the state where they reside. The state where they play will tax them on their income from games played in that state, while the state where they reside will tax them on their entire income. To avoid double taxation, an athlete’s resident state will give credit for taxes paid to other states. If the state you live in taxes you at a higher rate than the state you played in, then you pay the difference between the two states.
Federal Income Tax
Professional athletes are also subject to federal income tax with a rate that is typically the same as other high-income earners.
Social Security and Medicare Tax
Professional athletes are also subject to Social Security and Medicare taxes. These taxes are withheld from their paychecks and are used to fund Social Security and Medicare programs.
Professional athletes who make earnings from endorsements must also file taxes on that income. Endorsement income is typically taxed as ordinary income. However, there are some special rules that apply to endorsement income for professional athletes. For example, if a professional athlete hires an agent/manager to assist with their endorsement deals, then they can write off commissions paid against their endorsement income.
Professional athletes can take steps to minimize their tax liability. One way to do this is to establish residency in a state with a low income tax rate. This can be discussed with a tax advisor to fit the specific tax situation.
Professional athlete taxation is a complex issue that can vary depending on a number of factors. Professional athletes should consult with a tax advisor to discuss their specific tax situation and to develop a personalized tax plan that minimizes their liability. By delegating your tax matters to a professional, you can dedicate your time and energy to what you do best – dominating your sport and achieving greatness. Contact our team of Sports & Entertainment Industry professionals to minimize your tax liability, maximize your earnings, and secure your financial victory.
KROST Industry Magazine is a digital publication that highlights some of the hot topics in the accounting and finance industry. Volume 5, Issue 2 highlights some of the hot topics in the sports & entertainment industry, including tax issues for athletes, estate & trust planning, Client Accounting Services, and more.
About the Author
Brad Pauley, CPA, Principal
Tax, Sports & Entertainment
Brad Pauley is a Tax Principal at KROST. Brad has over 25 years of experience providing tax advice, projection, and compliance services to clients in a variety of different businesses and industries. His areas of focus include high-net-worth individuals and their closely held businesses, including athletes, entertainers, service professionals, and owners/operators of real estate, including like-kind exchanges. » Full Bio