Tax Impact on U.S. Women’s National Soccer Team Players at the World Cup
As the FIFA Women’s World Cup comes to a close, the world has been tuning in to see 24 teams compete across nine host cities. Fifty-two total matches will have been played, including the final being at the Stade de Lyon on July 7, which will once again include the top-ranked U.S. Women’s National Team (USWNT).
Off the field, the USWNT players will be faced with a myriad of both U.S. and international tax issues as well. Any income and prize money earned while playing in the World Cup will be taxed in the United States because U.S. citizens and residents must report their worldwide income. That same income will also be taxed in France, where it was earned, and the players can claim a foreign tax credit on their individual return resulting in a reduction of U.S. income tax by the amount of the foreign income tax paid to France. However, if the gross receipts per player do not exceed $10,000, then it’s not taxable (according to the U.S.-France tax treaty).
With the passage of the Tax Cuts and Jobs Act, there were certain provisions that directly impacted professional athletes who are employees, like the players on the USWNT, for taxable years beginning after December 31, 2017. Business expenses continue to be deductible as long as they’re directly related to the generation of income off the field (endorsement deals, image rights, card signings, appearance and speaking fees). However, any deductions for agent fees, training expenses, club fees and union dues previously covered under miscellaneous itemized deductions as unreimbursed business expenses are no longer available unless they are directly related to the production of outside income. Transportation costs, temporary lodging and meals are also no longer deductible incurred while traveling in the course of performing their duties as employees
The Tax Cuts and Jobs Act did have some positive provisions for professional athletes. While income from W-2 wages or income generated from their performance are excluded from being qualified business income (QBI), the income earned off the field previously mentioned is not. Outside income is considered QBI eligible for the 20% QBI deduction as long their income is under $315,000 for married filing joint (MFJ) or $157,500 for any other filing status. However, the IRS identifies athletes as performing in a specified service trade or business (SSTB) so the deduction is partially allowed and is subject to additional limitations once taxable income is between $315,000 and $415,000 for MFJ or between $157,500 and $207,500 for any other filing status. The deduction isn’t available once taxable income exceeds these higher thresholds.
As more and more U.S. athletes play abroad in leagues and tournaments like the FIFA World Cup, they should take note and seek proper tax advice and planning. The issues are very complex and should be carefully examined.