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Yamamoto to Owe More Tax Money Than Ohtani

michael mccann and robert raiola
·4 min read
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Although Yoshinobu Yamamoto will earn about $375 million less than his countryman and new MLB teammate, Shohei Ohtani, in his reported 12-year, $325 million contract with the Los Angeles Dodgers, Yamamoto could end up paying more in California income taxes than Ohtani, who signed a 10-year, $700 million deal with the Dodgers but with $680 million deferred until 2034 to 2043.

The key will be how a potential tax law dispute is resolved a decade from now: Can California tax Ohtani on deferred compensation if he isn’t residing or working in the Golden State?

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Here’s what we know for certain. Both Yamamoto and Ohtani will pay the highest federal income tax rate (37%) on the portion of their income that exceeds certain thresholds. Neither player is reportedly married, which impacts when the 37% tax rate kicks in.

Assuming both Yamamoto and Ohtani are single filers in 2024, they’ll pay 37% on income exceeding $609,499 ($731,200 if married). They’ll pay the same rate in 2025, but in 2026, the Trump tax cuts will have expired, and the 37% rate will climb to 39%.

We project Yamamoto will pay a total of $108.7 million in federal income taxes from 2024 to 2035. Assuming his $50 million signing bonus is paid in 2024, he’ll pay much more in federal income taxes next year ($27 million) than in future years ($9 million). Yamamoto will also pay a total of about $6.6 million in payroll taxes used to fund Social Security and Medicare over the next dozen years.

Ohtani, on the other hand, will “only” pay $609,499 in federal income taxes next year due to the deferral of Dodgers payments, which we detailed last week. The bulk of his federal income taxes will arrive when his deferred money arrives.

Of course, outcomes from forthcoming federal elections could lead to Congress passing, and the president signing into law, new tax legislation. Applicable rates during 2025 to 2043, when Ohtani’s deferred payments will end, are therefore subject to change.

That is also true in California, which has the highest income tax of any state. California’s top marginal rate—13.3% on income tax that exceeds more than $1 million a year—will climb to 14.4% on Jan. 1, 2024.

Assuming both Yamamoto and Ohtani are California residents while they play for the Dodgers, Yamamoto will pay the state a total of $40.2 million in income taxes on his Dodgers contract during the first 10 years of the deal (2024 to 2033). Ohtani will pay a much smaller total, $2.9 million, on his Dodgers contract to the state during that same period. These numbers obviously do not paint the full picture, since both players’ taxes will be impacted by additional earnings in endorsements and investments as well as expenses and possible deductions. Further, if the players leave the Dodgers for a team located in another state during their contract years, the tax calculations would change as well.

If Ohtani resides in California during his deferred money years, he’ll have to pay California income taxes. The more contentious question is whether California can tax Ohtani’s deferred compensation if he resides in another state, such as one without an income tax.

This question is not yet “ripe” for legal review since Ohtani’s deferred compensation period doesn’t begin for another decade. For its part, the California Franchise Tax Board declined in a statement shared with Sportico to address whether it intends to tax Ohtani. But the agency noted it has the legal authority to tax individuals “on California source income earned when they are nonresidents” and referenced a calculation that includes “days performing services in California.”

Ohtani could contend deferred compensation does not reflect “performing services” since he would not be working in California while receiving the deferred compensation. He might also turn to Title 4, Section 114 of the Internal Revenue Code, which precludes a state from imposing an income tax on retirement income of a person who doesn’t reside in that state. The Code also defines “retirement income” as inclusive of “nonqualified deferred compensation plans” with payments that are not less frequently than annually, occur during a period of not less than 10 years and are “substantially equal.”

These tax questions would be further complicated if either player legally resided in Japan, where the top tax rate is 45%. In that scenario, Yamamoto and Ohtani would need to comply with the tax laws of Japan, the U.S. and applicable U.S. states.

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