NFL player Jock Tax gets more complex with pay plan change

Justin Jones, a 2018 third-round pick for the San Diego Chargers, has faced professional hurdles in making the transition to the NFL, from adjusting to the pace of the pro game to being obliged to earn a starting role after graduating in college had played the leading role. At the bottom of the list, he made sure his taxes were accurate.

“Back in California I had situations the first two years where I had another CPA where I owed 50, 60 grand and I was going to get sick in April,” Jones said in a phone call. The withholding and tax calculations on the team-provided federal Form W-2 did not mean his annual obligations to the government were covered, which Jones says he and many other players believe. “Most people assume that if they get a W-2, that’s fine.”

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Unfortunately for players, the last collective bargaining agreement, approved in March 2020, introduced a new pay schedule that took effect last season, further complicating tax time for NFL players.

Athletes have had tax complexities for decades due to the so-called “jock tax”. Such laws, which require people to pay state income tax on days they worked in the jurisdictions, were introduced in the 1990s when player salaries were skyrocketing. Everyone is subject to them, but most states only care about collecting from high-paid athletes; According to various estimates, they generate more than $200 million in taxes per year in California alone. NFL teams issue W-2s and usually try to do some of the math, but good intentions can’t cover every player’s circumstances.

“I’ve filed tax returns for players on every NFL team, and they all do it differently,” said Jarrett Perry, a Florida CPA who works with numerous athletes. “Some of them count towards preseason, some don’t. Some include OTAs [organized team activities, which are offseason workouts]. It all depends. They all have their way of counting the days [for the W-2s].”

Teams mean well, but the discrepancies between the calculations mean many players are overpaying in taxes, Perry said. Some cases are so obvious that players catch the overpayment. For example, Perry has another soccer player client who had about $500,000 in state income taxes withheld on a signing bonus (Perry asked that details be withheld so the player could not be identified) but never lived or played in the state.

More typical – and often overlooked by players – are small mathematical errors in the assignment of “duty days” that add up to thousands of dollars in over-withheld taxes.

A simplified, theoretical example of Perry’s most common mistake: A player for the Atlanta Falcons (Georgia has a state income tax) meanwhile plays an away game in California and an away game in Florida, where there is no income tax, giving him a 100-day season is. The team will give California two days to settle its taxes. However, since Florida does not have an income tax, the team does not attribute anything for time spent in that state. Instead, the days are treated as if they were played in Georgia.

The net result is that the player withheld taxes on 2% of their income – those Florida days – when they shouldn’t. “I would estimate that 90% of players are overpaying in state income taxes because they are not allocating for non-taxable states,” Perry said.

All of the withholding can be returned at tax time if players reconstruct their own days of service and don’t rely on the W-2s — but players pay very little attention to it, and little advice comes from NFL Players Association teams, he said Jones, who, after joining Perry, refiled his early tax returns to reflect his correct taxes. “We’re not going into it as much as we should. I feel like it does the players a great disservice, especially the younger players, that we don’t talk about things like that.”

For its part, the NFLPA says that as a union it cannot offer tax advice, but has tax attorneys make presentations and answer player questions at annual seminars, Brandon Parker, the NFLPA’s senior communications manager, said in an email. “We recognize that there are a number of financial difficulties that come with being a professional athlete.”

Taxes for NFL players have only gotten more complicated this year. Each season’s pay schedule is now 34 weeks, with the final third of checks being written in January through March of the following year. In the past, players were paid for their season as it was played. The change was made in the last collective agreement at the request of most players.

“One of the problems that our union’s player leadership often heard from their members was that players were struggling to get through the offseason when they stopped receiving paychecks,” Parker said. “In response, our player leadership has proposed and passed a resolution to adjust the pay period to spread their paychecks into the off-season to allow players to better manage their money and be more financially responsible.”

While the change helps with cash flow, the downside is that the spread payments mean players face additional tax complexities when they get paid in 2022 for work done in 2021.

“Some [teams] treat them as deferred compensation and subject the contract amount to Medicare tax even though it hasn’t been paid out, and only pay federal tax on what they received during the tax year,” Perry said. That means some players have already paid 2.9% Medicare tax on their entire 2021 season contract before receiving it, as required by the deferred compensation rules, but they only have federal income tax on the portion of the actual Paychecks Received in 2021 About half of NFL teams don’t treat the payments as deferred compensation, meaning players owe 2.9% Medicare taxes on the 2022 tax returns they’ll file next year.

Turn to the jock tax question, and the NFL pay plan has raised even more tax questions. Most importantly, what is the proper tax treatment for players who live in a non-income tax state but played in an income tax state last year?

“That’s going to cause a lot of problems with the states,” Perry said. “The majority of them state that their tax is based on the year of income payment and the tax days for the same year. So [teams] levied state income taxes [in 2022’s paychecks]. But what if the guy never plays again or gets transferred to another state? They collected taxes for this state and falsely reported it. There is a way to fix the problem, but the majority of players don’t even know there is a problem.”

With the support of Jacob Feldman.

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