NHL Players’ Salaries Shrink by Millions After Taxes

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By Ryan Prete

What do National Hockey League athletes really make? The players are lucky to see about a third of their original salaries after federal taxes, state taxes, and other financial obligations.

As the 2017-18 NHL season kicked off this week, Bloomberg BNA analyzed four of the league’s highest paid players to illustrate the dollars that players never see, even before the Zamboni makes its first rotation around the rink.

Bloomberg BNA analyzed the following players’ salaries for the 2017-18 NHL regular season:

  •  Jonathan Toews, Chicago Blackhawks: $13.8 million salary, but receives $5.28 million in net pay (38.3 percent of original salary)
  •  Patrick Kane, Chicago Blackhawks: $13.8 million salary, but receives $5.28 million in net pay (38.3 percent of original salary)
  •  Jamie Benn, Dallas Stars: $13 million salary, but receives $5.57 million in net pay (42.8 percent of original salary)
  •  Anze Kopitar, Los Angeles Kings: $13 million salary, but receives $3.92 million in net pay (30.2 percent of original salary)

No Public Pity

Dr. John Karaffa, president of ProSport CPA, told Bloomberg BNA that the tax burdens aren’t going anywhere.

“Nobody in Congress is going to help these guys, and the public holds little pity for millionaire athletes when it comes to paying taxes. But as CPAs, our job is to help them pay the lowest amount possible.”

Karaffa noted, however, that NHL athletes do lag in endorsement revenue. “There are only a handful of guys in hockey with global recognition and the ability to rake in significant endorsement income,” he said.

Federal, State Taxes

The biggest blow to an NHL athlete’s salary comes from federal income taxes, which break off 39.6 percent of a player’s salary.

Players are also subject to state taxes, varying by jurisdiction. Toews and Kane are both Illinois residents, where the state income tax rate is 4.95 percent. Kopitar resides in California, the state with the highest state income tax rate at 13.3 percent.

Residing in Texas, Benn finds himself in one of four states home to a hockey team and without an income tax. Without potential millions owed in state income tax, Benn escapes with pockets heavier than his three colleagues. In fact, Benn nets more than Toews and Kane, despite having an annual salary of almost $1 million less.

Nineteen of the 24 U.S. teams are subject to state income taxes where they play. Florida, Tennessee, Texas, and Nevada don’t collect income tax. Further, the District of Columbia doesn’t tax nonresidents on games, according to Sean Packard, tax director at the McLean, Va.-based sports agency Octagon Financial Services.

Jock Taxes

Moreover, every professional athlete is subject to jock taxes, calculated by the amount of days a player contributes to “income related work” in a state that administers an income tax.

Each state begins counting “duty days” on the first day of practice, which was Sept. 15. Arizona is the only exception, which begins counting duty days on the first day of the regular season, according to Packard.

For the 2017-18 season, 205 total duty days will be counted—107 of those are from the 2017-18 regular season, while the other 98 duty days come from games played after Jan. 1, 2017 that carry over from the previous season. For each away game, each team spends at least one day in the state, translating to one duty day.

The single duty day is divided by the total amount of duty days (205), leaving most states the ability to tax .049 percent of a player’s total salary, which translates to a jock tax bill of more than $100,000 for all four athletes. Benn is hit especially hard by state jock taxes, playing away games in California eight times during the 205 duty-day period.

Canadian Players

To the north, seven NHL teams are located in Canada. For teams playing in and out of the country, jock taxes are collected only in specific circumstances.

“The tax treaty between the U.S. and Canada ensures that U.S. residents playing for U.S. teams do not pay taxes in Canada when they play there,” Packard said. “Similarly, Canadian residents playing for Canadian teams do not pay U.S. taxes when they play here.”

Packard said exceptions do exist for some Canadians, who must still pay taxes when playing in California, New Jersey, and Pennsylvania, as well as in the city of Columbus.

Escrow, Other Hits

The second largest hit to NHL salaries comes from the league’s escrow system.

Throughout the regular season, part of each athlete’s salary is deducted and set aside to ensure the league receives at least 50 percent of the total sport’s revenue. If at the season’s end the league has less than 50 percent, it takes a necessary amount from the escrow pool before dealing back the remainder to players, which is then taxed.

The escrow percentage varies four times during the regular season, and the final total is set after the season based on revenue figures, according to Packard.

Packard said the 2014-15 season was the most up-to-date year with finalized escrow percentages and return rates. In its analysis, Bloomberg BNA used escrow return rates from the 2014-15 season, when players had 15 percent of their salaries put aside for the NHL’s escrow account and received 2.05 percent back.

All professional athletes also face agent fees, which run at an average rate of 3 percent, according to Packard.

Not ‘Fazed’

Despite the towering burden of taxes and league-related deductions, Karaffa said he and his clients aren’t fazed.

“I have no pity for my brethren, these are people that love the game,” said Karaffa, who played professional basketball in Germany for 11 seasons. “At the end of the day, they’re making millions living out their dream job.”

To contact the reporter on this story: Ryan Prete in Washington at rprete@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

Copyright © 2017 Tax Management Inc. All Rights Reserved.

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