Fact Check: Is Shohei Ohtani's Dodgers contract exempt from California tax? Examining the ambiguity surrounding historic MLB deal

Shohei Ohtani's $700 million Los Angeles Dodgers mega-deal has captured the attention of the sports world and left many with more questions than answers. One such question is how much tax he will pay on such a sum, which depends on the breakdown of his contract and more.

While the annual average value (AAV) of the contract is $70 million per year, Ohtani has deferred an incredible $68 million per year for 10 years. He will earn $2 million per year for the next 10 years and then be paid $68 million per year for the following decade.

With that, some are wondering what happens if he leaves California before receiving the deferred payments.

You have to pay California tax if you’re a resident, a part-year resident, or a nonresident who earns income in the state. So Ohtani will have to pay California tax on the money he earns from the Dodgers over the next 10 years, but from there it gets complicated.

When it comes to deferred payments, if Ohtani is not living in California and not with the Dodgers, he won't have to pay California taxes. Interestingly, deferred compensation is not considered earned or taxable income until you receive it (as per wealthenhancement.com).

However, if he is still living in California or with the Dodgers when he receives each $68 million payment, he will be taxed on the sum.

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How much tax will Shohei Ohtani have to pay with the LA Dodgers?

For reference, if Shohei Ohtani was earning the full $70 million per year, he would have had to pay $25.9 million in Federal tax and $4.65 million in California tax. After agent fees ($2.1 million) jock tax ($2 million) and Medicare ($1.64 million), Ohtani would earn $33.6 million net.

Jock tax, for those who are unfamiliar with the term, is a tax paid to each state where income is earned. So playing in multiple states accrues tax.

On $2 million per year with the Dodgers, Shohei Ohtani will pay tax at a 46.54% rate, totaling $930,753 (smartasset.com). This leaves him with $1,013,783 per year. Breaking that down further, 35.15% of that figure is Federal tax, standing at $702,955, and 11.39% is California tax, totaling $227,798. There are also FICA and State Insurance Taxes at 2.77%, amounting to $55,464.

As Shohei Ohtani is expected to go from earning $35 million to $50 million in endorsements per year, he was comfortable doing this.

Now, when the time comes for the Dodgers to pay the $68 million per year, if Ohtani is still there or living in California, he will pay a lot more in taxes. The top California tax rate is 12.3%, while Federal tax caps at 37% (Nerdwallet.com).

This means that over the 10-year period, Ohtani will pay $335.24 million in those two taxes combined, with $86.34 million being California tax.

The deferred payments are said to have been Shohei Ohtani's idea for roster building, but it will be interesting to see what the future holds in terms of his taxes.