State Tax Strategies for Athletes and Entertainers: Residency and SALT Deduction Limitations

For athletes, most states use "duty days" to apportion earnings. Duty days may include practice, a game, a team meeting, or a media appearance. Other states use a "games day" approach. Even when states use the same method, there are nuances in the calculations and definitions used. Also, there are injury, inactive, and suspension days to consider.

Where a team plays changes throughout the season; the locations and days of events are unknown until the year ends which makes planning difficult. Local and city taxes add another level of complexity to the "jock tax." Regardless of where services are rendered and the methodology used, the resulting calculations are cumbersome and the returns filed are numerous. At the same time, these complexities cannot be overlooked since performers are easy targets for state and local taxing agencies.

Tax reform brought about the lowering of the top tax tier from 39.6% to 37% which can only serve to benefit successful professional athletes and entertainers. The same top bracket performers who benefit from the federal drop are hit hardest by the cap on the state tax deduction at $10,000 unless they reside in one of only seven states without a state income tax.

The disparity in the impact of these changes on a given performer is primarily a product of the state where most events (performance, game, tournament, etc.) take place. Under tax reform, a client who is a hockey player, with an average annual salary of $3 million, could see a decrease in tax of $80,000 playing for the Dallas Stars but owe an additional $62,000 playing for the New York Islanders.

Pay for services is only one of many types of income earned and taxed to celebrities. Often more consequential are signing bonuses, endorsement income, and SWAG. Each performer's situation is unique; however, steps can be taken to lower state taxes as well as the impact of tax reform.

Listen as our panel of experts explains the nuances of state taxation of performers, including the taxation of earnings unique to the services they provide and how to reduce the overall burden of taxes paid by these individuals.