New Jersey addresses taxability of signing bonus

The New Jersey Division of Taxation has released its Spring 2017, New Jersey State Tax News publication including information on the gross income (personal) tax treatment of a nonresident athlete’s signing bonus. In response to an enquiry from a nonresident athlete, the Division of Taxation stated that a signing bonus received from a New Jersey sports team would be subject to the New Jersey gross (personal) income tax unless it met the criteria of the regulatory exception found in N.J.A.C. Sec. 18:35-5.1(b)4iv(2). Total compensation for services rendered as a member of a professional athletic team normally includes a bonus paid for signing a contract with a professional athletic team and must be included in the nonresident’s total compensation. The nonresident athlete’s New Jersey source income is then determined by apportioning his or her total compensation based on the number of duty days the athlete spent in New Jersey and the total number of duty days for the taxable year.
For the exception to apply and the bonus not be included in the nonresident’s total compensation, the signing bonus must meet all three of the following conditions: (a) the payment of the signing bonus is not conditional on the signer playing any games for the team, performing any subsequent services for the team, or even making the team; (b) the signing bonus is payable separately from the salary and any other compensation; and (c) the signing bonus is nonrefundable. If all three criteria are met the signing bonus is not taxable in New Jersey. However, if the bonus does not meet all the criteria, it must be included in the athlete’s total compensation and apportioned based on duty days spend in New Jersey. (New Jersey Division of Taxation, State Tax News, Vol. 46 No. 1, Spring 2017.)
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