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.
Solo-Athlete Compensation
The method of compensation for athletes in individual sports varies, as does the manner of taxation. Solo-sport athletes often earn prize money based on performance in various tournaments or competitions. Prominent athletes may also be paid to participate in events, boosting the event’s status and audience. High-level athletes often supplement their income with endorsement and sponsorship deals.
Federal and State Income Taxes
In the U.S., solo-sport athletes pay both federal and state income taxes, like other U.S. citizens. Regarding state taxes, athletes must pay income tax in each state where they earn prize money or competition revenues. This means that athletes must pay taxes in the state where they earn their income. If athletes earn money in several jurisdictions, they must pay income taxes to each one separately.
Taxes on Net Earnings
Solo-sport athletes are taxed on net earnings, similar to workers in other professions. Athlete income includes personal awards, participation fees, grants, and sponsorships. Endorsement money, merchandising revenue, and royalties from licensing activities are also sources of income. Athletes may deduct expenses from their gross income, such as agency commissions and manager’s fees, travel and lodging costs, and training expenses.
Different Tax rates in Different Countries
Sports professionals competing globally must consider tax responsibilities in each country where they compete. Tax authorities generally impose taxes on visiting athletes based on residency and income source principles. An important factor in taxation is residency. Solo-sport athletes are taxed in their country of residence, usually on their worldwide income, depending on tax laws. However, when competing abroad, income from that country is often taxed there.
Taxing Global Income
Athletes living in countries taxing global income may receive a tax credit for taxes paid on foreign income. For example, if a U.S. golfer competes in the British Open, winnings are taxed in the UK. The player can claim the UK tax paid on their U.S. tax return to avoid double taxation.
Non-Resident Tax Returns
Solo-sport athletes should be aware that they will likely need to file non-resident tax returns when competing in other countries. In some places, like the UK, visiting athletes are taxed on global endorsement revenue linked to their participation in local events. For example, a U.S. golfer playing in ten global events, including two in the UK, will be taxed on 20% of their global endorsement income. Athletes should be mindful of this and plan their competition schedules accordingly.
Athletes must understand the tax treatment of their earnings in their country of residence and in countries where they compete. They must comply with the laws of each country to avoid double taxation.
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