Although NFL player Tyreek Hill does not work from home, the eye-popping four-year $120 million deal with the Miami Dolphins will not leave him complaining about his demanding career. Hill and his advisors undoubtedly factored his state income tax liability into his decision of where to live and work. Although the deal with the New York Jets was tempting for the NFL player, when comparing his state taxes, Hill knew the intelligent decision (at least from a tax perspective) would be working for the Miami Dolphins due to Florida being an income-tax-free state.
Playing for the Dolphins rather than the Jets saves Hill an estimated $2.7 million in state and local income taxes this season alone, with three more seasons to go on his contract. If he had signed with the Jets, he would have paid a little over $2.9 million to New Jersey and about $207 thousand to other states, for a combined total of approximately $3.1 million. With the Dolphins, he will owe an estimated $475 thousand to other states where he plays but not one cent of income tax to Florida.
Professional athletes’ finances shed light on tax considerations relevant to the millions of Americans who now work remotely and the tens of millions who enjoy additional workplace flexibility. States levy income taxes both where you live and where you work. To avoid double taxation, when you pay taxes to a non-domiciliary state where you worked for part of the year, your home state provides a credit for the taxes you paid to that state, up to the amount you would have paid your home state on that additional income. But if the second state has a higher rate than your home state on that income, you do not receive a credit for the excess amount.
For example, let’s say Hill played for the Arizona Cardinals this season. Arizona’s top marginal rate is currently 4.5%, which is lower than the marginal rates he would face in several states where he would play. Playing for Arizona, he would owe $333,704 in taxes to other states but only have $192,631 credited against his home state tax liability.
Like remote workers, athletes are not alone in owing taxes to the non-domiciliary states in which they work. Some states, however, adopt reasonable thresholds, like allowing someone to spend up to 30 days in the state before having an income tax obligation there.
Hill probably did not make his decision exclusively based on taxes, but there is no reason to doubt him when he says they factored into his analysis. In an era of increased workplace flexibility, where many employees can live and work from just about anywhere, it factors into the decision-making of plenty of people who will never play professional sports. Sometimes there is a straight line of causality, with people seeking out lower-tax jurisdictions. Other times, the connection is indirect. People may prefer better job opportunities, a lower cost of living, or a higher quality of life that stems, at least in part, from a state’s decision to prioritize economic competitiveness through its tax code.
Earlier this year, a new study found that for each percentage point increase in state income tax rates, professional sports team winning declines by 0.7 percentage points. As individuals and businesses navigate an increasingly mobile post-pandemic economy, states are jockeying to remain competitive. Dozens have cut the rates of major taxes since 2021, including 21 that have cut individual income tax rates. States clinging stubbornly to high rates and uncompetitive tax structures may lose out on far more than just a star wide receiver.
Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.