Recently, star Miami Dolphins Wide-Receiver Tyreek Hill was asked why he signed a 4-year contract with the Dolphins over the New York Jets. Hill honestly and shortly answered, “Just those state taxes man. I had to make a grown-up decision.” Hill was referring to the state income taxes of New Jersey, which has a marginal income tax rate of 10.75% for those earning over $5 million a year. Hill’s contract is for a reported $30 million a year, thus he could be paying New Jersey State income tax of roughly $3 million had he selected the Jets. The State of Florida does not impose an income tax and upon establishing residency, he will not pay any income tax on what he earns in the state.
*Note that Hill will still be required to pay income tax on his salary to the state where his away games are located.*
State income tax is imposed by a state on income earned from the state or in it. Like federal income tax, state income tax is self-assessed, meaning taxpayers must file state tax returns. There are currently eight states that have not imposed a tax on income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Although New Hampshire doesn’t tax earned income, the NH government still taxes unearned income such as dividends and interest. Though by 2027, the NH government plans on abolishing all individual income tax.
While some states impose zero income tax, California imposes the highest marginal tax rate at 13.3% of taxable income over $1,000,000. Because of these high marginal tax rates, sport franchises located in California and New York/New Jersey can find themselves at a steep disadvantage compared to those located in Texas and Florida when it comes to compensating athletes.
A pertinent example being that of Tyreek Hill’s experience.
Other than the sunny, beautiful beaches and the eclectic population, it can be insinuated that Hill is not the only person who has assessed their options for residency and evaluated the choices contingent upon tax-related measures; perhaps why many of the United States’ wealthiest individuals choose to reside in Florida.
In many states, if you are a resident, it means all income earned in any capacity will be tax subject to that state’s income tax. However, you can take a credit for the income tax paid on income from out of state. Also as previously stated, even if you are a resident of a state that does not impose income tax, you will still be subject to tax if the income is earned in another state where income tax is imposed.
Tyreek Hill will be subject to income tax for the salary he earns when he scores a touchdown in the Meadowlands when the Dolphins travel to New Jersey once a year. However, the state income tax savings of him being a Florida Resident and playing for the Dolphins are going to be astronomical. For reasons like this, the taxation of individuals working and earning income in multiple states can get complicated. It is recommended to talk to a professional consultant when facing State Income Tax Issues. Feel free to reach out to Janus, Curran, Finkelson-Reece, PLLC Certified Public Accountants if you would like to discuss.
-Mathew Finkelson-Reece is a licensed Certified Public Accountant in the States of Florida and Pennsylvania, he also holds an Accreditation in Business Valuation from the American Institute of Certified Public Accountants. He can be reached at mreece@janus-curran.com/
