The Mobile Workforce Simplification Act could be a game-changer for mobile employees
This year’s winners of Super Bowl LII will have a lot to celebrate. Besides walking away with their own much-coveted Super Bowl rings and $100,000 bonus checks, they’re sure to receive offers for commercials, book deals, and more.
But all wins aside, this tax season — like tax seasons past — is likely to cause your favorite pro athletes plenty of grief. That’s because their taxes are insanely complicated and expensive.
It all comes down to income taxes. If you live in one state and work in one state, you likely pay income taxes for that state (unless you’re one of those lucky ducks living in a state without income taxes). For people who take frequent business trips or who serve clients across state boundaries, it’s a little more complicated, but we’ll get to that in a minute.
The pro athlete tax dilemma
Pro athletes are essentially mobile employees, and as such, they are subjected to the many tax laws of every state and city in which they play. Think your taxes are high? All told, pro football players pay out over 40 percent of their income in taxes, cutting their yearly salary by almost half (in comparison, the average American’s effective tax rate for 2017 was around 29.8 percent).
For example, sources say last year’s Super Bowl star, Tom Brady, paid a 42 percent effective tax rate. Meanwhile, the Falcons’ Matt Ryan paid 43 percent, equaling out to $10.3 million in taxes.
Remember the recent upheaval of teams moving into, out of, and around California (looking at you, Rams, Chargers, and Raiders)? The Rams’ relocation from St. Louis made for some pretty unhappy fans. If you’re one of them, you might take solace in the fact that California has the highest income tax rate in the country. Last year, players from all three teams paid out around 47 percent of their income to taxes. Now that’s karma.
Taxes for pro athletes are so complex, athletes must rely on tax experts to help them file. And it’s not just filling out the forms for each state that’s the problem. Put all the federal and state taxes aside, and it’s important to look at timing and credits.
Some states give tax credits to people paying taxes in multiple states. Others give credits to players paying taxes in very specific states. Some states don’t make players pay income taxes for money earned during the preseason. And others have rules regarding what is considered a “full day” of work, like New York, where an athlete leaving the state at 12:01 in the morning still has to pay taxes for that day.
New law may simplify taxes for spectators
Lucky (or not) for them, most mobile employees aren’t pro athletes, which means income taxes are far less complicated. And for many, they may be getting even simpler, thanks to a lesser-known piece of legislation called H.R. 1393, the Mobile Workforce State Income Tax Simplification Act. H.R. 1393 has achieved bipartisan support and passed the House without amendment in June 2017, and it is currently pending in the Senate.
It doesn’t sound super flashy, and no, it probably doesn’t look as good as a Super Bowl ring. But for mobile employees who spend the majority of their time traveling around the US for work, the Mobile Workforce State Income Tax Simplification Act could mean the difference between paying income taxes once and paying income taxes for four or five different states.
A recent TSheets survey found 62 percent of US employees traveled across state lines for work within the last 12 months. While the majority (77 percent) worked in three states or fewer, more than 1 in 4 people surveyed said they visited more than four states.
Currently, the law requires mobile workers to pay income taxes in every state they work in, as well as some cities. Take a business trip to Denver? You owe income taxes in Colorado. Visit a client in LA? You owe income taxes in California.
For most people, these one-offs likely wouldn’t even register as work done in another state, but for individuals who travel and earn wages in several different places per year, all those forms and taxes add up. And it’s something pro athletes are very familiar with. (Who says you don’t have anything in common with a multimillionaire pro football star?)
A game-changing law for mobile employees
The good news for these mobile employees is H.R. 1393 might be the Hail Mary pass to solve all their income tax woes. If it passes, employees will no longer be required to file income taxes in any state other than their own, with the exception of states where they put in more than 30 days of work. Considering the majority of interstate business travelers (55 percent) only spend up to two weeks away from home each year, H.R. 1393 could be a great help.
Oh — and if you’re wondering how the Mobile Workforce State Income Tax Simplification Act would affect pro athletes, bad news, Tom Brady. H.R. 1393 won’t apply to you. Guess you really can’t win ’em all.