How is Your Signing Bonus Taxed? (2021 Update) | Erik Averill, Travis Chick | MLB Draft Podcast
Episode Notes
Are you familiar with the changes to how an MLB Draft signing bonus is paid out? Historically, teams have split the gross amount into two equal payments over two years, but due to COVID-19 have recently made some important changes that you need to know.
As a player, your ultimate goal is not the gross (before tax) MLB Draft signing bonus amount; rather, it is the net (after-tax) amount. In the past, how you structured your payments - whether they were uneven payments or not - was a huge opportunity for tax planning, but that option has now been eliminated. However, one thing that hasn't changed is how the signing bonus is taxed.
In this episode, Travis and Erik discuss what a signing bonus is, and how the recent changes might impact families and cover commonly asked questions like:
What changes have been made to the signing bonus structure in 2021?
How are signing bonuses are paid out?
Are these true signing bonuses? Or are they wages?
How does my residency impact the way my signing bonus is taxed?
What is an abandonment clause and how might it impact my signing bonus?
What happens when an abandonment clause is removed?
Now that signing bonuses are paid out over 3 years instead of 2, what are the important implications and opportunities that families should consider?
When should I start doing the tax planning?
When is it important in the draft process to bring on certified financial experts?
Why are players hearing the argument that they shouldn't bring on financial experts if they're only going to earn $100,000 in their first year - regardless of the size of their signing bonus?