When the Dodgers made Kyle Tucker's four-year, $240 million deal official in January, the Associated Press published the team's full deferred-payment schedule. Ten players. Payments from 2028 to 2047. Total: $1.0945 billion. The yearly bill peaks at $105.3 million in both 2038 and 2039, long after these contracts' playing years end.
Shohei Ohtani's share is $680 million, payable $68 million a year from 2034 through 2043. Tucker's is $30 million, paid from 2036 through 2045. Mookie Betts, Freddie Freeman, Blake Snell, Will Smith and others have their own schedules.
Everybody talks about what deferrals do for the team's payroll math. I want to talk about the player's question: when that check arrives in 2040, who gets to tax it? The devil is in the details, and the details are in a 1996 federal statute.
Takeaway #1: The federal rule that stops a state from following you
FROM THE RULE
"No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State (as determined under the laws of such State)."
What it means for you. Normally, a state can tax a nonresident on income earned for work done there. Deferred pay is still pay for that work, even if it arrives decades later. Section 114 carves out "retirement income." If you've genuinely left the state when you receive it, the old state can't tax it. Congress added this in January 1996. It isn't a sports rule. It protects a retired teacher's pension and a nurse's 401(k) the same way it can protect a shortstop.
Notice the parenthetical. Whether you're still a "resident or domiciliary" is decided "under the laws of such State." So California decides whether you really left California. That's why the move itself has to be real: the home, the family, the days, the paperwork.
Your move. If you have deferred pay coming, plan your residency story years before the first check, not the week before. Keep the proof: where you live, vote, register your car, see your doctor and file your returns.
Takeaway #2: Not all deferred pay counts. The shape of the payments matters
FROM THE RULE
"is part of a series of substantially equal periodic payments (not less frequently than annually ...) made for— (I) the life or life expectancy of the recipient ..., or (II) a period of not less than 10 years"
What it means for you. Pensions and 401(k)s are on the statute's list. But a private deferred-pay deal, the kind most executives and athletes have (the statute points to nonqualified plans described in tax code §3121(v)(2)(C)), only counts as "retirement income" under §114 if it's paid this way: roughly equal payments, at least once a year, for life or for at least ten years. (There's a second path for excess-benefit plans, but that's a narrower case.)
Look at the AP table with that in mind. Ohtani's deferral is $68 million a year for ten years. Tucker's, on AP's table, is $3 million a year for ten years, assuming he doesn't use the player options in his deal. On their face, those are the kinds of schedules the statute describes. I'm not saying any particular contract qualifies, or why anyone chose its schedule. The contracts and plan terms aren't public, and the residency question is separate.
Now flip it. A lump sum or a five-year payout of deferred pay generally doesn't fit the definition. Then the old state may still tax the part tied to work you did there, wherever you live when it's paid.
The player gets the money later, and the payout schedule can help decide which state, if any, shares in it.
Your move. If you're negotiating a deferral, as an athlete, executive or founder selling to a buyer that wants to pay over time, ask your tax adviser to check the schedule against §114 before you sign. Changing it after the fact is hard, and federal deferred-pay rules limit when you can.
Sample wording (our illustration): "The Deferred Amount shall be paid in ten (10) substantially equal annual installments, commencing on [date], and shall not be subject to acceleration except as permitted under applicable law."
And always remember, don't sign it till you read it, my friends.
General information, not legal or tax advice. Reading this doesn't create an attorney-client relationship. Talk to a tax adviser before you agree to a deferral or plan a move.
