Explaining the taxability of professional athletes
Nonresident professional athletes must use the “duty days” method to determine the amount of income tax due to Michigan.
Personal Service Income
The formula for calculating the income tax due, is the player’s personal service income multiplied by a fraction, the numerator of which is the Michigan duty days and the denominator is the total duty days. Personal service income generally includes the regular playing season’s salary, guaranteed payments, certain bonuses, deferred compensation, and other forms of performance-based compensation. However, personal service income excludes strike benefits, severance pay, contract buy-outs, and other payments unrelated to services under the player contract.
Total duty days covers any day in which the player must perform services for a team under the terms of the player’s employment contract. Total duty days includes the following:
- game days, preseason training camps, team meetings;
- promotional activity days or other activities occurring after the end of the playing season;
- days on the disabled list;
- travel days, regardless of whether the travel day includes another activity that may be taxed by any particular state; and
- off-season workouts that are mandatory and conducted at team facilities.
Michigan duty days relates to the total duty days a player spent within Michigan performing a service for the team as required by the contract. It excludes (i) travel days that do not include a game, practice, meeting, or other team activity; and (ii) days in which the player is on the disabled list.
Duty Days Method
A nonresident is exempt from the tax resulting from the duty days method if a reciprocal agreement exists with the nonresident’s state of residence. Players who play for multiple teams must compute the total duty days and Michigan duty days for each player contract.
Revenue Administrative Bulletin 2018-27, Michigan Department of Treasury, December 17, 2018.