LeBron James is going to take his talent to South Philly, and a portion of his salary to City Hall.
The newly signed Sixer — that feels so good to write — is being rumored to live in New York City and commute to games and practices by helicopter, according to ESPN.
Commuters who live elsewhere but work in Philly are required to pay the city’s wage tax on a portion of their salary. And there is no exemption in the tax code for a King.
Main Liners, rejoice. Next time you look at the withholdings on your pay stub, you are allowed to proclaim: LeBron, he’s just like us, amirite?
In fact, James has likely paid the Philadelphia wage tax throughout his career for games he played here against the Sixers.
But how much of James’ $8 million salary over two years counts toward the wage tax will depend on how, and where, No. 23 spends his time from training camp to the final day of the season.
Let’s break it down.
What is Philly’s wage tax, and does it apply to athletes?
Philadelphia levies a 3.735% tax on the entire income of its residents, and 3.425% on the income nonresidents earned working in the city.
The wage tax is one of the city’s three major revenue sources, alongside property and business taxes, and has brought in more than $2 billion annually in recent years. A third of the taxes collected comes from commuters.
Philly’s tax on earnings is among the highest in the country, and the city led the charge in the 1990s to ensure professional athletes paid their share. It is now common practice for cities to impose a so-called jock tax on players — home and visiting — but athletes are taxed in the City of Brotherly Love under the same wage tax as everyone else.
What counts as a Philly workday for LeBron James?
Calculating the wage tax for commuters can get tricky, especially since remote work has become common.
Every day of work that requires a nonresident to be in Philadelphia counts toward the tax.
The question for James, and other athletes, is what counts as a working day — and how many of those days he spends in Philly vs. the Sixers’ training facility in Camden.
Practice, film review, rehab, and games could all count as workdays, said Stephen Kidder, a tax attorney who specializes in professional sports.
“Every single one of those days is a duty day for a professional athlete,” Kidder said.
A spokesperson for the city said, “Philadelphia welcomes LeBron James with open arms,” but did not respond to a request for comment about any special guidance for athletes.
How much will LeBron James pay in wage taxes?
If James ends up living in Philly, the calculation is simple. He would have to pay 3.735% of his annual salary of $4 million — roughly $150,000 — regardless of where he spends his time.
But if he lives outside the city, it comes down to counting days.
Without knowing James’ overall number of workdays in the year, and how much of that time is spent in Philadelphia, it is impossible to estimate his tax bill.
The number of duty days for an NBA player can vary widely, depending on practice schedule, depth of playoff run, and other activities, such as promotions.
An often-cited number to get a sense of the size of the tax bill for NBA players is 200 workdays.
If his only Philadelphia workdays were the Sixers’ 41 home games, and if, as seemingly the youngest 41-year-old in history, he played in all of them, roughly 20% of King James’ income would be earned in Philly.
In this scenario, the city would tax 20% of James’ annual income at the 3.425% rate for nonresidents, for a hypothetical tax bill of around $28,000. That number would decrease if he missed some home games, or increase if he attended other team activities in Philadelphia.
(This writer refuses to make any calculation related to the playoffs that could constitute a jinx but suffice to say: See you on Broad Street next summer.)
Do taxes affect players’ decisions?
Professional athletes and the associations representing them care a lot about state and local taxes, and are fighting against them.
The MLB, NHL, and NFL players associations, alongside three former professional athletes, sued Pittsburgh over its 3% jock tax for visiting players. And last year the Pennsylvania Supreme Court struck the tax down because it was higher for nonresidents than for residents.
City and state taxes are part of the package when athletes choose where to play, according to Kidder, who represented the associations in the state Supreme Court case. A professional athlete in Florida owes the state no tax, for example, while California has a jock tax of up to 13.3%.
“Some athletes may be in a point in their career where it doesn’t matter that much,” Kidder said. “But for other athletes it may be a big difference playing for a team based in Florida compared to a team based in New York.”
Ed Wasielewski, a Philadelphia-based NFL agent and founder of EMG Sports, says tax considerations come up often in free agency deals. The difference between no tax, Philly’s 3.735% tax on residents, and California’s 13.3% jock tax amounts to millions of dollars in take-home pay.
“A player is well advised to have a good accountant, a good attorney, and a good agent team to correctly analyze the tax consequences,” Wasielewski said. “It definitely comes into play in contract negotiations, especially in free agency.”
If James chooses to live in NYC and commute to practices in Camden and games in Philly by helicopter, taxes might not be high on his list of concerns.
New Jersey and New York have state jock taxes, and New York City has a new pied-à-terre tax on luxury second homes.
At least one person in the Sixers organization, it seems, is not working overtime to duck a tax.
