Over the summer, Former Kansas City Chiefs Wide Receiver, Tyreek Hill was traded to the Miami Dolphins and proceeded to sign a $120 million deal with the team. He was extremely close to a deal with the New York Jets but recently said in an interview that he chose Miami due to state tax implications. “Those state taxes, man. I had to make a grown-up decision,” Hill told reporters. In a big way, this experience sheds some light on how tax implications are having an impact on decisions made by millions of Americans who choose to work remotely and often in different locations.
The Financials Behind the Decision
From a business perspective, it’s hard to blame Hill for choosing the Dolphins over the Jets as the deal saved him an estimated $2.7 million in state and local income taxes per season. Mr. Hill would have had to pay $2,984,409 to New Jersey, and $207,559 to other states for a combined $3,191,968 tax bill. However, in Florida, Hill owes nothing to the state because there is no state income tax and an estimated $474,519 to other states where he plays.
The Jock Tax
For remote workers, some states adopt reasonable thresholds for taxation purposes, like allowing someone to spend up to 30 days per year in the state before having an income tax obligation there. However, athletes are treated differently in that regard and are subjected to distinct income tax rules. Often referred to as a jock tax, athletes are taxed on days they spend in different states even if it’s only for a brief time. These calculations are based on duty days, which is the number of days they spend in a state for a percentage of their season.
For example, if Hill was the play for the Houston Texans, he would have paid the least amount of jock tax to other states ($176,534), while a stint in any of the 3 California teams (49ers, Rams, Chargers) would have cost him an astonishing $3,963,102 in taxes to other states because of their schedules.
Wrap Up
Individuals and businesses continue to navigate the post-pandemic employment world, and states are all jockeying to remain competitive in the job market while also generating tax revenue. Dozens of states have cut the rate of major taxes since 2021 including 21 states that made cuts to individual income tax rates. States that continue to hold onto high rates, and uncompetitive tax structures will be struggling to keep up in the new remote world.