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If you live in one state and work in another, you must notify the IRS when tax season arrives.
If you work in multiple states, you must also notify the IRS. And for professional athletes, competing on the road makes calculating income tax very complicated.
“Take, [for] for example, a professional baseball player. How many cities does this baseball player play in? They will sometimes need to file income tax returns in ten to fifteen states. So, it can be a bit expensive. For a starting professional athlete, when they get their first check, it’s great, and then they realize, ‘I have to pay taxes everywhere,'” says Rich Hofmann, a tax attorney and CPA.
Hofmann says professional athletes need to know where they are when working. But, he says, for most professional athletes who work for an organization, it’s the organization that will do the tracking.
Hofmann also says the way an athlete’s contract is structured could impact where their income tax is paid. “They might be able to structure some of their compensation as deferred compensation. There might be some things they can do in terms of a signing bonus and residency when that bonus comes through. So, there are some really interesting things you can do, but, again, it really depends on the player and the facts and circumstances.”
Hofmann says professional athletes should use an agent who knows what’s going on and has access to tax expertise.
