I've repeatedly heard it said a few times that since athletes get paid a check for each game, they pay the state/city taxes of whichever state the games are played rather than pay taxes exclusively for their home state (e.g. a Red Sox player ends up paying Mass taxes on only 81 games and pays New York taxes on the 18 or 19 games they play the Yankees). Not sure if this is true though.
Here's an article (the accuracy of which I cannot confirm, as most of the sourcing links are dead) that lays out how this works. From what I can tell, it looks like the traditional rule is that athletes file returns in their state of residency and the state where they play their home (not away) games. However, states have been changing their rules in order to get extra money, which now results in some athletes having to file returns in up to 38 (!) states. This is obviously a total disaster, and can lead to hilarious results when you get denied a residency credit discussed below. For example, Sammy Sosa was somehow forced to pay state income tax on more than 100% of his income after the Illinois Tax Board screwed him on a credit issue. Here are the quotes - if my analysis seems wrong, let me know.
Typically, a resident individual is subject to state income tax on his or her worldwide income; a nonresident individual is subject to state income tax on his or her income derived from or connected with sources within the taxing state. In addition, a resident taxpayer is generally allowed a resident tax credit, subject to certain limits, for taxes paid to the nonresident jurisdiction. If the taxpayer's resident state does not impose an income tax (e.g., Florida and Texas), no resident credit is available.
Historically, sports-team athletes would file income tax returns in two jurisdictions: (1) their resident state and (2) the state where home games were played. They did not file income tax returns in states where away games were played.
Although many states follow traditional rules, others have revised their laws, regulations, guidance and policy to tax athletes and entertainers under alternative methods. Such methods may be a trap and result in unanticipated tax liability and compliance.
Allocation methods: The two most common allocation methods for athletes of professional teams are the (1) "duty days" method and (2) "games played" method. The duty days method allocates income based on a ratio, the numerator of which is the number of duty days the taxpayer is present in the state and the denominator of which is the total number of duty days. "Duty days" are all days the athlete is required to perform services (i.e., from pre-season and training camp through postseason playoffs, including instructional leagues, promotions, appearances, etc.).
In comparison, the games played method allocates income based on a ratio of games played in the taxing state to total games played. Certainly, the athlete's taxation can differ significantly, depending on the state's method of taxation, as well as a particular athlete's residence, sport and location of activities.
http://goliath.ecnex...l-athletes.html
This topic is locked
