Solo-sport athletes and tax obligations

By Stefanos Gregoriou, The Sports Financial Literacy Academy        

For most solo sport athletes, given their constant traveling and inherent tax obligations, the subject of income taxes can be very scary.

Although most solo-sport athletes have their own personal tax experts, knowing and understanding their tax obligations may sometimes spare them from major headaches. In this Post, the money smart athlete will explore the different tax obligations that solo-sport athletes have depending upon their sources of income and where that income has been earned.

The method of compensation for athletes competing in individual sports varies, as does the manner of taxes.

Solo-sport athletes are frequently compensated with prize money based on their performance in various tournaments or competitions. Furthermore, solo-sport athletes, particularly prominent ones, may be paid to participate at a tournament or competition to boost the status of the event and attract a large audience. Moreover, high-level athletes' income is frequently supplemented by endorsement/sponsorship deals from outside parties.

In the US, solo-sport professional athletes have to pay both federal and state income taxes, just like any other US citizen. In terms of state taxes, they must pay income tax in each state where they earn prize/competition revenues or payments for participation in a specific tournament in that state. The rationale is that athletes should pay state income taxes in the state where they earn the revenue. That implies that, if a professional athlete makes money in many jurisdictions, they must pay income taxes to each one separately.

Additionally, solo-sport athletes are taxed on their net earnings in the same way as people who work in any other profession. Athlete personal awards, appearance and participation fees, grants, sponsorship and endorsement money, merchandising revenue for product sales, royalties from licensing activities are common sources of income for athletes. These athletes are entitled to deduct expenditures from their gross income, which often include agency commissions and manager's fees, competition travel and lodging, touring costs, equipment, clothing, training facility and trainer/coach charges, and so on.

Sports professionals, operating on a global scale, must be aware that they may be subject to tax responsibilities in the countries where they compete, both in terms of tax filing and tax liabilities.  

Most tax authorities across the world impose tax on visiting sports people based on the principles of residency and source of income.

A very important factor in taxation that should also be considered is residency. The solo-sport athlete is taxed in the country of their tax residence, usually on their worldwide income, depending on the tax laws of their “tax residency” country. However, when the solo-sport athlete is competing in another country and they receive income from that particular country, the income from that activity is usually taxed in the country where it arose. If the athlete is a tax resident of a country that taxes its residents on their global income, they are usually entitled to a tax credit for taxes paid on foreign source income. For example, if a US golf player competes at the British Open, any winnings from the event are taxed in the UK, and players can claim the UK tax paid on their US tax return to avoid double taxation.

Therefore, sports professionals competing in individual sports should be aware that they will almost certainly be required to pay tax and submit non-resident tax returns when competing in other jurisdictions. Furthermore, some jurisdictions, such as the United Kingdom, tax visiting solo-sport athletes on their worldwide endorsement revenue in proportion to the events they have participated in the country during the tax year. For example, let us say that a professional golf player from the United States participates in ten events globally in one year, two of which are in the United Kingdom. The golf player will be taxed in the United Kingdom on 20% of the global endorsement revenue. Solo-sport athletes should be aware of this mode of taxation and should organize their tournament/competition participations accordingly.

It is very important for all athletes to be aware of the tax treatment of their earnings in their country of residence as well as in the countries in which they compete, in order to comply with the relevant laws of each country as well as to avoid any double taxation on their income.

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