Editor’s note: The Tax Foundation included an incorrect figure for Baltimore. It has updated the chart.
When NFL wide receiver Tyreek Hill weighed offers from the New York Jets (who play in New Jersey) and the Miami Dolphins, no doubt there was a lot on his mind. But one consideration towered over the rest, according to Hill himself. Signing with the Jets “was very close to happening,” but “those state taxes, man. I had to make a grown-up decision.”
He’s not wrong. Playing for Miami will save him an estimated $2.7 million in state and local taxes this season alone.
Had he played for the Jets this year, he would have owed an estimated $3,191,968, of which $2,984,409 would go to New Jersey and $207,559 would go to other states. Playing for the Dolphins, he will not owe any income taxes to Florida (which doesn’t have an income tax), but his away games will yield an estimated $474,519 in liability elsewhere on the $30 million he’ll make this year.
A stint with the Houston Texans ($178,534, all to other states) would have cost him the least, while any of the three California-based franchises would have yielded a whopping $3,963,102 tax bill. Amusingly, Miami’s schedule yields the highest out-of-state liability in the league, well above the average of about $300,000. But schedule-based variations in out-of-state taxes pale in comparison to taxes Hill would owe to his own state.
Hill was never, of course, in contention to sign with every team, but exploring his estimated state and local tax liability — to his home state, to other states, and the interaction of the credit for taxes paid to other states — not only illustrates how meaningful taxes can be for location decision making, but also offers insight into how income taxes work for the growing number of people (not just athletes) who work in multiple states over the course of a year.
States tax income 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 will offer you a credit for the taxes you paid to that state. Though it’s more accurate to say that they’ll offer you a credit up to the amount you would have paid in your home state on that additional income. If the second state has a higher rate than your home state does on that income, you won’t get a credit for the excess amount.
Imagine, for instance, that Hill played for the Arizona Cardinals this season. Arizona’s top marginal rate is 4.5% (dropping to a 2.5% flat tax next year), which is lower than the marginal rates he’ll face in other states. (It doesn’t help that he’d have two games in California.) Had he donned cardinal red, he would have paid $333,704 in taxes to other states but only had $192,631 of that credited against his home-state tax liability.
Everyone owes taxes to nondomiciliary states in which they work, often after working there a single day, though some states adopt reasonable thresholds, like allowing someone to spend up to 30 days in the state before having an income tax obligation. (Every state should adopt these traveler- and remote worker-friendly “mobile workforce” laws.)
But athletes and other entertainers operate under different rules than the rest of us: even in states with a multiday threshold, athletes are always taxed, and the calculations are typically based on what are called “duty days,” which is the number of days they spent in that state as a percentage of their season. These athlete-specific rules are often termed “jock taxes,” though they’re part of the individual income tax.
The table below estimates Hill’s tax liability this season on his $30 million–a–year contract if he played for every team, taking into account taxes paid for each team’s home and away games.
We make a number of simplifying assumptions. Most importantly, we assume that each out-of-state away game involves three duty days in that state. Depending on how far a team has to travel and what their schedule looks like, the actual number of duty days will vary.
Secondly, we focus entirely on the regular season: calculations change if a team makes it to the postseason, but such schedules are, of course, unknowable.
We also disregard the preseason and any out-of-state training camps, though this is a trivial omission, as veteran players are only paid $1,600 a week during this time, truly a drop in the bucket in Hill’s $30 million annual salary.
Because of these and other simplifying assumptions, this table should not be relied upon for tax planning. If you are Tyreek Hill looking to force a trade in the offseason, please consult with your financial advisor or ask Drew Rosenhaus to recommend one.
With that said, let’s explore how much Hill would have paid in taxes this season if he had signed with each team. The value of credits for taxes paid for other states is shown broken out, but these credits are included in the calculation of the amount paid to the home state.
Tampa Bay Buccaneers
Las Vegas Raiders
New Orleans Saints
New England Patriots
Kansas City Chiefs
Green Bay Packers
New York Giants
New York Jets
Los Angeles Chargers
Los Angeles Rams
San Francisco 49ers
Notes: Assumes three duty days per out-of-state away game. Excludes potential postseason games as well as preseason and training camp days, which are only paid at $1,600 per week and are thus trivial. Calculated for single filers with no dependents Sources: National Football League (schedules); Tax Foundation analysis.
Like most people, Tyreek Hill probably didn’t make his decision exclusively based on taxes, but he’s surely being truthful when he says it factored into his analysis. And especially in this 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 aren’t NFL superstars, too. Sometimes it’s a direct consideration, with people favoring places where they’ll pay less in taxes. And sometimes it’s indirect, with people seeking out 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.
When states impose higher tax burdens, employers have to pay more just to remain competitive with employers elsewhere. The additional wages aren’t helping their employees, who turn around and pay them in taxes; it’s just an added cost of doing business in a higher tax state. It reduces employment, reduces productivity, reduces investment, and reduces after-tax income.
In the world of professional sports, a recent study found that for each percentage point increase in state income tax rates, team winning declines by 0.7 percentage point.
Recognizing the enhanced mobility of this new economy, dozens of states have cut the rates of major taxes in the past two years. States that cling to uncompetitively high taxes may find themselves losing out on more than just Tyreek Hill.
Jared Walczak is Vice President of State Projects with the Center for State Tax Policy at the Tax Foundation, a Washington, D.C.,-based think tank, where this was first published. Follow him on Twitter @JaredWalczak.