The Tax Implications Facing Kawhi Leonard and Other NBA Free Agents

Now that the dust is settling on the latest NBA draft, the sole focus of basketball fans around the world is on this off season’s latest crop of free agents. While there are a variety of decision-influencing factors for both teams and players, the state or country of a team determines more than just where the players’ home games will be. In the cases of some of the most wanted players such as Kawhi Leonard, the tax implications of playing for different teams will play a role in the final verdict.

Players for teams located in Texas, Florida, and Tennessee enjoy having no state income taxes, whereas state income taxes are highest for professional athletes residing in California (13.3%), Oregon (9.9%), and Minnesota (9.85%). For out of country players like Kawhi of the Toronto Raptors, being a U.S. resident and Canadian player can make things even more complicated. To start, these American player’s pay taxes on their Canadian income in Canada with provincial and federal taxes not to exceed 53.53%. They are also liable for U.S. income tax requirements not to exceed 37%, potential state taxes based on residency, and jock taxes. Even with a tax credit from Canada, the overall cost can equate to over 10% of a players earnings.

American professional athletes are subject to “jock taxes” in other states where they play, practice and earn income. It is calculated by dividing the number of work days spent in a state by the player’s total number of work days. When tax time comes up, the player will pay the rate that’s the highest between their resident and non-resident state, while getting a credit for the state with the lower rate.

Although Kawhi has enjoyed being a Texas resident (no state income tax) since his time as a San Antonio Spur, he recently purchased a $13.3 million California mansion. Considering that Kawhi is currently spending his offseason there, California’s Franchise Tax Board will likely put on a full court press in an attempt to rule him to be domiciled in the Golden State and subject to state income taxes. This residency change would increase Kawhi’s state income taxes significantly, which may make a big difference in if he wants to stay with Toronto or pursue a U.S. based team.

In any case, all players should consider the potential changes a move can have on their overall tax situations. With the help of an expert tax counsel, they’ll be able to better prepare for basketball and tax season.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss with you the current opportunities available to you. For more information, contact us today.