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Super Bowl’s Hidden Treasure… the Jock Tax

Super-bowl-hotelAs the focus here in New Jersey switches from “Bridgegate” to “tailgate,” we think about the things that we love best about the Super Bowl. A few of mine include eating wings, drinking beer and, of course, watching those witty commercials. However, as the players gear up to battle the elements this week, one other thing separates this Super Bowl from the others: the proverbial taxman. Many states impose an income tax on nonresidents’ earnings and New Jersey is one of them. To professional athletes, it is known as the “jock tax.” 

Most professional athletes are paid for the time they are required to work.  These are known as “duty days” and in a typical season an NFL championship player can expect to work for about 235 days. This number becomes the denominator in our equation. The numerator is the number of days worked in any given state. So for example, once Peyton Manning landed at Newark airport this week to attend the numerous mandatory press conferences, events and practices, he will end up with about eight duty days. Moreover, if he decides not to retire after the big game, we will see him back in New Jersey this fall to play the Jets, giving him another two duty days. For the math enthusiasts reading today, you may have already deduced that about 4.26% (based on 10/235 duty days) of Manning’s total compensation (an estimated $15 million) will be considered to have been derived from New Jersey sources. If we apply New Jersey’s top tax rate of 8.97%, his friends in Trenton should be expecting to receive about $57,500.

Manning’s opposition, the Seattle Seahawks hail from a tax haven. The state of Washington does not impose an income tax on individuals. So assuming most players and coaches are residents of Washington, they are really coming out of pocket to play in New Jersey. This is in great opposition to many prior games played in states such as Florida and Texas. Aside from being more temperature friendly, neither imposes an income tax at the state level.

So what is the silver lining? Well, state income taxes are generally deductible on a player’s Federal tax return. If we assume the top Federal rate at 39.6%, Peyton will recoup approximately $23,000 of his New Jersey outlay. Secondly, he will receive a tax credit against his home state of Colorado’s income tax assuming he is settled into his beautiful new home in Cherry Hills Village.  

In conclusion, we’ve focused on a small area of taxation for the purposes of this post today. Another thing to consider is that all the players (not just Manning), along with the coaches and anyone else who normally travels with the team will pay their fair share of New Jersey’s “jock tax.” If we couple this with the sales tax revenues from the estimated 400,000 people expected in the area this week, Governor Christie has a lot to be smiling about now.

Raymond M. Pinglora, III, CPA, MST, Principal/Tax Partner, Van Duyne, Bruno & Co., P.A. Based in New Jersey, the firm specializes in providing accounting, tax and advisory services to the professional sports and entertainment industries.

Leonard Zhukovsky / Shutterstock.com

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