We’re tennis fans around here. We watch matches, have favorite players (Call us, Federer!), and heck—we even sponsor tournaments. The game of tennis is thrilling. However, as tax aficionados, there’s one thing about tennis we just find fascinating. And that’s the complex nature of pro tennis players’ income. And yes, how tennis players are taxed.
Between prize winnings, sponsorships, speaking engagements, and clinics—not to mention international play—the income streams of top tier athletes make for some of the most interesting tax cases out there.
How does Serena Williams, one of the most decorated tennis players of all time, spend her Tax Day? What does Novak Djokovic do to make sure he doesn’t run into tax complications in Monaco? Does Roger Federer have another grand slam title in him before he retires?
While we can’t answer that last question, we can answer the others. If you’ve ever wondered how tennis players and other pro athletes who play internationally are taxed, then you’re going to want to keep reading. Today, we’re going to explore how a few of the most common income sources for tennis players are taxed, and what that means come tax time.
First thing’s first. We need to address the fact that a majority of major players on the world tennis stage aren’t from the United States. For every Venus Williams, you have two Naomi Osakas—and tax laws vary widely from country to country.
Why do so many top international players seem to live in places like Monaco, Dubai, and Switzerland?
Two words: Worldwide income.
A majority of countries have specific tax codes governing any foreign earnings, so international figures who make money worldwide will often settle down in places where foreign income taxes, or income taxes in general, are low or nonexistent.
Relocating where you call “home” (quotations intended) isn’t surprising or original; you see this type of international tax hopscotch with major corporations all the time. For pro tennis players who live outside the U.S., there’s almost nowhere better to go than Monaco, which doesn’t tax its residents, such as Novak Djokovic, on their worldwide income. Other tax havens such as Dubai or Switzerland carry their own tax advantages.
Now, compare this to nations like Spain, where Rafael Nadal pays up to 56% of his income in taxes. When you’re dealing in the tens of millions of dollars each year, it’s not surprising that many athletes, Formula One drivers, cyclists, and golfers who are accustomed to traveling year-round already don’t mind relocating their home base to somewhere that allows them to reap more of their prize winnings.
The powerhouse Williams sisters live in Palm Beach Gardens, Florida. Though he retired a few years ago, Andy Roddick lives in Austin, Texas. While these three all had childhood ties to their current residences, Florida and Texas also have no income tax.
Only seven states—Florida, Texas, Wyoming, Washington, South Dakota, Nevada, and Alaska—have no income tax. That’s why it just makes good financial sense for athletes to call these states home. Though, to our knowledge, there are currently no active pro tennis players hailing from South Dakota.
A large portion of a premiere tennis player’s income is derived from prize winnings. In fact, a player with a long, healthy, successful career can earn upwards of $75-100 million just from playing. This year’s U.S. Open awarded singles winners, Djokovic and Osaka, the largest checks ever given out. The United States Tennis Association awarded them $3.8 million each.
The way these players are taxed is, well, complicated. But we already knew that.
Generally speaking, you’re taxed where you earn your money. For domestic play, some states have pretty strict “road warrior” laws. They mostly apply to people who frequently travel to other states for work. Some states expect for you to pay them taxes if you arrive in their state at 8am, earn money, and leave at 5pm. Meanwhile, others have a window of 10 to 60 days before their nonresident income taxes kick in.
Depending on their local income tax laws, a tennis player might end up being taxed twice. They might owe tax where they win their money and again where they live. For foreign players in the U.S. (and U.S. players overseas), they’ll often pay a flat 30% tax on their winnings. But they will sometimes receive a tax credit for the tax they’ve already paid on that income depending on the tax relationship between the countries.
Djokovic made $3.8 million at the U.S. Open, but he’s made another $22 million this year from endorsements. He reps Lacoste, ANZ Bank, and Seiko Watches. And he’s not the only pro tennis player to earn a majority of his annual income from endorsements.
Even when the prize totals are upwards of a million dollars a pop, sponsorships are truly the bread and butter of tennis players. Whether it’s speaking on behalf of Adidas or being the face of Dunlop, there are many side hustles that pro tennis players nab that offer them a steady stream of income when they aren’t actively competing. Even a sponsored Instagram post or commercial could earn an athlete thousands or hundreds of thousands of dollars alone!
Broadly speaking, in the United States this kind of income is classified as self-employment income. When the New Orleans Saints pay Drew Brees his salary, he’s considered their employee. When he finds his way onto a Wheaties box, any money he makes as the face of The Breakfast of Champions will be taxed as self-employment income.
Tennis players benefit from being untethered to corporations like the NFL or a major sports team with conflicting trademarks, so some athletes make a brand out of themselves. It’s not unusual for public figures to set up pass-through businesses or LLCs in their names to streamline their income from all their talk show appearances, commercials, and other endorsements.
As you can see, tennis taxation is a tricky subject. Between the international play and diverse income streams, it can be hard to wrap your head around the complex set of tax laws that apply. But just like anything tax-related, you simply need to understand the basics principles and go from there.
For tennis pros, the location and source of income make a huge difference on how much money they owe, and where they owe it. For now though, us tax pros will turn our focus to what we truly find most interesting about tennis players—the tennis!