By Ryan Prete | Bloomberg
The highest-paid NBA players are among the richest athletes in America. But taxes unique to professional athletes shave millions from a player’s salary.
As the 2018-2019 National Basketball Association season enters its fourth week, Bloomberg Tax analyzed the tax burdens of four of the highest-paid players—two each from the league’s Eastern and Western Conferences.
Geoffrey Marsh, a financial adviser at McLean, Va.-based sports agency Octagon Financial Services, told Bloomberg Tax that rookie athletes are among those most often blindsided by income taxes.
“When I sit down with first-year players, I tell them to expect to take home about half of their salary. It’s always important to relay that information on the front end of a conversation,” Marsh said. “When a lot of them get that first paycheck, it comes with an eye-opening experience. They really realize how much money they lose.”
Where the Money Goes
All NBA players pay federal income tax at the highest rate of 37 percent.
Most players also owe state income taxes, which vary. Stephen Curry of California’s Golden State Warriors pays the highest rate in the country—13.3 percent—which means almost $5 million for the two-time NBA MVP recipient.
States with a sports franchise that don’t administer an income tax on wages are Florida, Nevada, Tennessee, Texas, and Washington. Athletes who reside in these states can net millions more than elsewhere in America.
Every professional athlete in the U.S. is also subject to “jock” taxes, which are calculated by the amount of time a player contributes to “income-related work” in any state that administers an income tax. The time is measured in “duty days.”
The jock tax is calculated by taking the amount of time a player spends in another state and dividing it by the total amount of income-related work days, which start at the beginning of training camp, according to Sean Packard, tax director at Octagon Financial Services.
States without an income tax don’t collect a jock tax. Players receive a tax credit from their home state on jock tax totals to avoid double taxation. Further, the District of Columbia doesn’t tax nonresidents on games, according to Packard.
Escrow System; Other Bills
The NBA, like the National Hockey League, has an escrow deferment system to ensure that players obtain 51 percent of total league revenue, as agreed to in the NBA’s Collective Bargaining Agreement.
Ten percent of each player’s salary is deducted, placed into an escrow account, and returned to the player, minus taxes, the following season.
Each player receives 24 paychecks per season, and the escrow deductions are subtracted from 12 of them, Marsh said.
If the player’s share of revenue falls short of the agreed-upon 51 percent, the league contributes the necessary additional money, known as a “shortfall.”
In the 2016-2017 season, each player received $355,449 in shortfall money, according to Marsh, who said he expects the 2017-2018 season to result in another shortfall bonus.
In the 2017-2018 season, only players on two teams—the Chicago Bulls and the Dallas Mavericks—received a shortfall, because those teams didn’t hit a team salary floor minimum, Marsh said. Players who competed in at least 41 games for either of the two teams received $192,569, before taxes, in shortfall money.
Players also pay an agent fee, which averages about 3 percent of a player’s salary, according to Marsh.