The Complexity of State Income Tax Reporting for Professional Athletes

Should you rely on your W-2?

Many taxpayers receive their W-2 in the mail January or February and immediately file their income tax return without thinking the W-2 could be wrong, but for professional athletes, these W-2s may not be reliable.

Thanks to the “Jock Tax” that allows states to tax the income of professional athletes on income earned within its state lines, professional athletes must file a tax return in almost every state they were active in during the season, regardless of the dollar amount this comes to.  The professional sports teams make an effort in allocating a portion of the salaries to multiple states during the year, but many times the allocations are incorrect and sometimes exclude an entire state in which an athlete played during the year.  With these athlete’s schedules easily accessible to the public, there is not much room for filing errors.  Many athletes send their W-2’s to CPA firms, where accountants will allocate income among each state using a Duty Day Calculation, a widely accepted calculation method accepted by many state taxing authorities.

The Duty Day calculation takes the number of days an athlete was active in its state over the total number of active days for the season (from pre-season training to the last game in which they compete).  Being active in a state includes games, practices and meetings including promotional games such as the MLB All-Star Game.

W-2’s can often times be relied on to be correct, but on certain occasions a broader calculation is needed where it is best to bring in a qualified tax professional for advice.