By surpassing the $10 billion mark in revenue in its 2021-22 season, the National Basketball Association (NBA) reinforced its position as one of the most profitable leagues in the world and the third most profitable in the United States (US) behind the National Football League (NFL) and Major League Baseball (MLB) respectively. This reality naturally makes NBA players among the best-paid athletes in the world with a minimum salary of just over $1 million and a maximum salary of well over $48 million for their 2022-23 season. Many NBA fans often wonder how much their favorite players pay in tax and what types of taxes are applicable to them considering their sizable incomes.
How much do NBA players pay in tax? Almost every NBA player pays 37% of their annual salaries to the government in taxes since their earnings put them in the highest federal tax bracket. Players are also subject to state and city taxes depending on which state and city they ply their trade. These tend to differ since some states and cities have no income tax. Special taxes like the “jock tax” may also apply for income earned outside of a player’s home state or municipality.
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Do NBA Players Have to Pay Taxes?
Yes, NBA players do have to pay taxes since they have the same rights as all taxpaying citizens which causes them to fall under the same requirements (duties and responsibilities including but not limited to paying tax). The same laws apply to foreign NBA players since their income is derived from the federal jurisdiction of the US making it subject to income tax.
NBA players are also required to file income tax returns in multiple states since the nature of their job demands that they play in multiple states across the US and in Canada. While most average US citizens who work for one company may get away with only filing a W-2 to fulfill their tax obligations, NBA players often have to file hundreds of pages of tax returns since they may visit up to 20 different states every season.
Due to their tight schedules and complexities that come with filing such absurd amounts of tax returns, most NBA players normally retain accounting firms to help them sort out the “mess” and offer them advice with regard to their financial dealings (financial planning). The NBA also offers financial literacy classes to players when they enter the league to help foster proper financial habits.
What Types of Taxes Do NBA Players Pay?
NBA players usually pay various taxes depending on a number of factors. The four main types that the average NBA player pays are:
- Federal tax.
- State tax.
- City tax.
- Jock tax.
Technically, 29 of the 30 NBA franchises are subject to US federal taxes with the exception of those from the only non-US-based team – the Toronto Raptors – who are required to pay their income tax in Canada.
This is because the majority of their business (about 65% including regular season and playoff games, practices, and training camp) is conducted within Canada’s jurisdiction and Canada’s tax laws dictate that both resident and non-resident players pay taxes for duties conducted within their borders.
It is also important to note that most NBA players (including a number of those on the Toronto Raptors) maintain US residency and are thus not taxed by Canadian authorities for income accrued during road games. They are nevertheless subject to jock taxes in the cities where they play outside Canada (in the US) which is determined by either dividing the number of workdays within a given state (regular season and playoff games and practices) by their total number of work days or simply the number of games they play for some states.
Interesting fact: Jock taxes are believed to have been introduced after Michael Jordan won his first NBA title against the Los Angeles (LA) Lakers in 1991. An LA city department is believed to have demanded that the six-time NBA champion pay a non-resident income tax which came to be known as a jock tax after other cities followed LA’s lead and passed similar laws of their own..
In summary, most NBA players (those with US residency) all pay federal tax, state, and city taxes depending on whether they are required to pay them by their state of residency or municipalities (city/local governments), and jock taxes for all other cities where they work.
Toronto Raptors players are the exception as they are required to pay federal and provincial taxes for Canada and Ontario respectively (totaling around 53% of the income they earn in Toronto, Ontario). There are however several tax incentives such as credit for taxes paid in Canada for NBA players with US residency.
Favorable treaties also exist between the US and Canada which allow players to keep the larger chunk of their signing bonuses (a maximum of 15% tax is payable on them). Higher Medicare and Social Security taxes in the US also work to bridge the seemingly large tax gap (53% and 37%) between Canada and the US respectively.
Player Case Studies
While it would be impossible to adequately deconstruct every NBA player’s salary in one sitting, there are a few good examples of player case studies that can illustrate how the tax dynamics vary depending on the NBA team they play for.
James Harden – the point guard is arguably one of the best examples of the multiple layers of tax obligations that NBA players have to navigate. After being traded from the Oklahoma City Thunder to the Houston Rockets in 2012, his tax obligations were reduced since Texas and Houston have no State and City taxes respectively. Only federal taxes applied to the Beard’s income.
However, after the 2018 NBA MVP was traded to the Brooklyn Nets in 2021, he was required to pay both State and City taxes of around 8.82% and 3.89% since his income fell under the highest tax brackets for both.
Had he stayed with the Nets, Harden would have paid almost 13% more in tax meaning he would have only kept around 50% of his contract as opposed to the around 60% he would have kept at Houston. His recent trade to the Philadelphia 76ers has significantly reduced his current tax obligations since their state and city tax rates are much lower.
Kawhi Leonard – the two-time NBA champion’s highly publicized trade from the San Antonio Spurs to the Toronto Raptors in 2018 equally changed his tax obligations since he paid no state and city taxes to Texas and San Antonio respectively while at his former team.
The move increased his tax obligation since he previously mostly paid federal taxes (around 37%) and jock taxes for road games and transitioned to paying around 53% in federal and provincial taxes to Canada and Ontario respectively alongside jock taxes and other US taxes which increased his tax obligations by a little over $2 million.
The two-time Defensive Player of the Year however received a hefty trade kicker that was only subject to a maximum 15% tax which evens things out. Signing with the Los Angeles Clippers in 2019 may have allowed him to play closer to home but also increased his tax obligations since he became subject to state and city taxes for California and Los Angeles respectively.