What does the "jock tax" have to do with global mobility?

Whether your employees are working from anywhere, everywhere, all over, remotely, or in person, taxes must be considered. If you have remote employees in states other than where your organization is located, understanding the tax rules can be challenging. Compliance requires a company to know where their employees are doing their work and what the tax ramifications are for that work. Following proper tax procedures, including any required withholdings, is essential to remaining compliant.

This podcast episode from The Hustle Daily Show talks about the "jock tax" and how it relates to something much broader than just athletes working in other states. The reality is that professional athletes owe major tax bills every time they work in another state, and if you’re a remote employee, or an employee moving around from state to state, you might, too. In the past, these types of tax challenges have been limited to specific people, like professional athletes, but with so many more people working from home, employers and state governments face new challenges around taxation and employee benefits. Each state has its own approach to taxation, and depending on where you live and work, the tax obligation varies. This article from PeopleKeep explains how taxes work for remote employees, including the different types of remote workers, which states have unique tax circumstances, and how remote work affects employee benefits.

Jock tax and the connection to remote work

As the podcast shares, "jock tax" is just a fun nickname for this tax phenomenon. While the exact origin of the jock tax is unknown, a 1976 court appeal against California provides a clue, according to AWM Capital. There was a San Diego Chargers kicker/punter that disputed his tax fees and obligations. In 1991, when Michael Jordan and the Chicago Bulls beat Magic Johnson and the Los Angeles Lakers in the NBA Finals, the state of California supposedly wanted payback. So, it taxed Jordan and his teammates’ earnings from playing in California that year. In retaliation, Illinois legislators passed their own tax law labeled “Michael Jordan’s revenge.” The legislators would only impose their “jock tax” on nonresident athletes from states that imposed “jock tax” on Illinois-based athletes. After “Michael Jordan’s Revenge,” more states started imposing the jock tax, and it became a cost of doing business as a professional athlete.

The reality is that if you work in any US state (and most cities), you owe taxes. There are 41 states in the U.S. that charge income tax and about half require visitors that work to pay income tax even if they work for only one day. There are rules that will trigger the income tax for non-residents after they work in-state for more than a minimum amount of time or earn a minimum amount of money doing so. And if you worked remotely from a state for more than 183 days last year, you may even be characterized as a resident for tax purposes. With more people working remotely and states wanting to earn more money, there is fear that the states will get much more aggressive about the taxes they're owed, and not just for sports. 

According to Kiplinger, if you're required to file multiple state tax returns because you live in one state and work in another, it doesn't mean that you'll pay taxes two separate times on the same income. Typically, after you fill out a state tax return for the state where you work, you'll file a second tax return for the state where you reside. On that return, you'll report how much your tax liability was on the first state tax return.  All states allow their residents to claim a tax credit based on the taxes paid to other states. Note, however, that there isn't any guarantee that the state tax credit will always equal what you paid in taxes to the state where you work.

Another great resource for info on this topic is this show that highlight's AIRINC's Global Tax Director Pat Jurgens who talks here about post pandemic tax policy and jock taxes.

For more on tax and global mobility, you could also try one of these articles:

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