Well today, LeBron may have cost himself $3.6M of that amount.
First a history lesson (that none of us probably need). Travel back with me to July 8th 2010 – the date of The Decision. Lebron James told ESPN and the world that he would be “taking [his] talents to South Beach and join the Miami Heat”. Tax nerds went wild. See Florida doesn’t have a personal state income tax. Ohio, the home state of both LeBron and his now former team – the Cleveland Cavaliers, had a state income tax rate of 5.925% for any income over $200,000. Fellow tax gurus reasoned that LeBron left Cleveland so he didn’t have to pay an additional 6% of his salary each year to the state of Ohio. Over the course of his contract that would have saved him millions of dollars so that seems logical.
Second a BRIEF tax lesson.
- Professional athletes are taxed on their ENTIRE salary in the state that they reside. (In simple terms, as an athlete - you are a resident of the state that you live in during the offseason. [Yes there are exceptions but let’s not bore everyone])
- Professional athletes also pay state income taxes in every state they play in. If the Miami Heat play at Boston, LeBron sends a tax check to the state of Massachusetts.
- Professional athletes (for the most part) pay income taxes on the money they receive for endorsements ONLY in the state they are a resident of. Again, that’s typically the state they live in during the offseason.
Third, an explanation of why we are talking about all of this today. If LeBron James had in fact moved to Miami when he “took his talents there”, he would not have to pay state income taxes on any of his $39 million dollars of endorsement income each year nor on most of his $16 million dollar NBA salary each year. He would still have to pay state income taxes on the away games the Heat play each year and he would have to send the federal government a big check each year but not to state governments.
Simple enough. We all go home now? No.
See today LeBron posted a picture on instagram of him heading into jury duty in Akron, Ohio’s Summit County Court.
Who serves on jury duty? RESIDENTS OF THAT COUNTY!
Therefore, for tax purposes, LeBron is NOT a resident of Florida but a resident of Akron / Summit County, Ohio. Being a resident of Summit County, Ohio brings along a county income tax rate of 2.25% and Ohio’s top marginal income tax rate of 5.925%. So now LeBron will have to pay over 8% income tax on ALL of his $39 million dollar endorsement salary, and ALL of his $16 million dollar NBA salary. And that’s just for this year. If Ohio wasn’t already aware he was a resident, they are now. They will likely look to charge him for previous year salary’s if they weren’t aware of this beforehand.
If Ohio wasn’t already aware that he was a resident of their state – that instagram cost LeBron $2.6M to the state of Ohio and $1M to the Summit County.