In the NFL, Tuesdays can be expensive. Around the league, players walk into their locker rooms each week, hoping not to find a yellow slip of paper in their stall, notifying them of a fine. Everything from fighting to wearing an Apple watch on the sidelines can draw the dreaded notice. In 2018 alone, Spotrac counted over $4 million in fines across the league. And starting that year, the U.S. government made those penalties more costly.
By passing the Tax Cuts and Jobs Act in 2017, Congress eliminated the ability to deduct unreimbursed employee business expenses, such as union dues, agent fees—or fines not associated with a business venture. As a result, a hypothetical player making $1 million who was fined $500,000 would still have to pay taxes as if he’d earned his full million. “Athletes took a big hit when they changed the law,” said Robert Raiola, director of the sports and entertainment group at accounting firm PKF O’Connor Davies.
Now, though, some tax pros are wondering if NFL teams have been mischaracterizing those fine payments when calculating players’ taxable wages on their W-2 forms, forcing athletes to pay potentially millions more than they need to. When reducing pay for a workplace infraction, the accountants say, most employers reduce an employee’s taxable wages by the same amount, whereas NFL teams generally do not.
“I think the leagues are doing it wrong,” says sports accountant Tim Johnson, a partner at JLK Rosenberger, “but how you get it right with the IRS—that’s an entirely different issue.” The issue extends to athletes in all sports, though the NFL often dwarfs its peers in fines levied.
Seven-year vet Jaylen Watkins generally avoided fines himself, but he couldn’t help but notice when those yellow slips appeared in friends’ lockers. He’d often find himself having a conversation with the offenders afterwards, not about their behavior but about their finances. As his CPA, Jarrett Perry, had put it, people shouldn’t be paying taxes on money they never really earned. A W-2 that Perry shared with Sportico showed a player, who had lost more than $300,000 in fines, was still being taxed for that amount. On a corresponding paystub, the money was listed as a deduction, alongside expenses for hotel amenities, tape and Christmas tips.
Perry hired a tax attorney to outline how, in the NFL’s collective bargaining agreement, fines result in forfeited pay, which should be treated as a reduction in compensation rather than as a business expense. In his eyes, fines are like performance anti-bonuses. It’s largely semantics—whether a fined player earned the money he then had to surrender, via withheld salary, or never truly earned it at all. But when it comes to tax time, the semantics matter.
IRS guidance on how employer-imposed penalties should be handled is limited, partly because the concept of an employee fine is foreign to most workplaces.
Perry says he’s been able to get players refunds stretching back a couple of years, though he declined to share his methods, adding that they were a big draw for new clients. Using the $4 million in fines number, Perry believes teams are costing athletes nearly $2 million a year, if not more, across federal, state and FICA taxes.
Ryan Losi, an executive vice president at Piascik who has worked with athletes’ finances for 16 years, disagreed with that position. “Just because money is withheld, it doesn’t mean it reduces the calculation of the federal taxable wage,” he said. “Many players think in their mind, Whatever hits my bank account, that’s what I’m taxed on, which is not the case at all.”
In Losi’s mind, when it comes time to file there’s no functional difference between a player who had written a check and one who had money held from him. For Perry, there is a distinction between withholdings that correspond with benefits (like union dues) and those that should be viewed as a form of pay reduction.
To further confuse matters, there’s also the issue of suspended players, who lose weekly paychecks over the course of their league-mandated timeout. According to Spotrac data, over $20 million was lost to suspensions in 2019. In that case, CPAs differ not only on how the losses should be treated, but also on how they are currently being handled by teams. Perry said he’s seen paychecks lost to suspension treated the same as money taken as fines—players are taxed for money they don’t receive. But Sean Packard, director of tax at Octagon Financial Services, said his clients’ suspensions have been handled differently. In his experience, suspended players haven’t been forced to pay taxes as if they’d earned their expected salary. Losing a game check due to suspension would at least mean a smaller tax bill, whereas an equivalent fine likely wouldn’t lower a player’s tax obligation. As a result, from a financial perspective, he said, “If you get fined a game check and are actually playing, you get screwed.”
Across leagues, “there is a remarkable consistency in terms of how the tax issues are handled,” said Stephen Kidder, a Hemenway & Barnes partner who advises multiple pro players’ unions. But teams do have the ability to manage their own accounting differently, adding to the complexity.
For instance, after Cleveland Brown Myles Garrett clubbed Pittsburgh Steeler Mason Rudolph with his helmet in 2019, the Browns defensive end was fined roughly $50,000 and suspended for six games, costing him more than $1 million in game checks. It’s quite possible that Garrett paid taxes on that first bit of income he never received but not on the million lost to suspension.
Following that Browns-Steelers melee, each team was fined $250,000, while individual players racked up another $232,422 in fines. Of course, the clubs likely wrote off their fines as a business expense, but the current tax regime potentially cost the athletes $100,000.
One thing CPAs agree on: Fines can’t be written off as charitable contributions, even if most of that money makes its way to union and league-connected nonprofits, because the money isn’t being sent directly, nor voluntarily.
Then there’s the philosophical question of whether players should even be getting a tax break following a fine, if the purpose of the penalties is to discipline misbehavior. But the triggers for fines vary widely. In many cases, the penalties come for misdeeds. On the other hand, players (especially defensive ones) often view an occasional fine as a cost of playing their position, while others opt to break uniform rules to make a statement.
For now, Johnson hasn’t seen any indication that leagues are working to make sure players aren’t getting overtaxed. “There’s just not a whole lot of sympathy for athletes and their tax or financial problems,” he said. Punished players likely get even less. The same goes, it seems, for their accountants, who are left sorting out the mess.