It felt groundbreaking when Shohei Ohtani did it with the Los Angeles Dodgers over a year ago. By the time Frank Vatrano did it with the Anaheim Ducks earlier this month, it was a certified California trend.

Athletes, like everyone else, don’t like paying taxes. California has a top marginal income tax rate of 13.3 percent, plus there’s the top federal rate of 37 percent, so high-earners like athletes are forking over a lot of hard-earned money. But if the team a player wants to sign with is in California, what can they do to avoid the state’s high taxes? As Ohtani and Vatrano have now done, they can defer the income until they likely won’t be living in the Golden State anymore.
…
The key to avoiding taxes on deferred payments is paying them out in equal amounts over at least a decade. “A 1996 federal law forbids states from taxing retirement income on out-of-state residents when payments are made in ‘substantially equal periodic’ amounts over at least 10 years,” The Athletic‘s Evan Drellich explained.

Those deferred payments won’t just help athletes avoid taxes—they might help ease the pain felt by franchises in high-tax states when they’re negotiating with players in free agency.

Plenty of factors go into a free agent athlete’s decision on where to sign: taxes, cost of living, and climate, not to mention team-related factors. But research has shown state income taxes really do hold back teams in high-tax states. … Read More

(via Reason)