MLB Signing Bonus Explained: A 1st Rounder's Story
- Jacob Turner
- Sep 4
- 7 min read
“Wait, you mean to tell me I owe more in taxes?”
This was me circa 2009 when it came time to file my tax return.
You see, I had just signed my first MLB contract, paid what I thought was a king’s ransom in taxes, and here I was still owing more.
Fast forward a few decades, and I have the opportunity to lead Moment Private Wealth.
A financial planning firm that specializes in athlete wealth management.
They say history repeats itself, and that certainly feels true as we advise our athletes.
They sign for life-changing money.
They pay a king’s ransom in taxes.
They owe more come the tax filing deadline.
So in today’s blog, I am going to break down everything you need to know about your MLB signing bonus.
You will understand what gets taken out, what taxes you will pay, and the strategies to consider.
Let's dive in...
The MLB Draft Experience
The MLB draft is a life-changing experience for athletes (and their families).
Yet, with all that excitement, also comes a world of unknowns.
Heck, unless you had family members go through this experience, chances are everything is new.
Stack on the fact that everyone has an opinion, comment, or “the way to do it.”
The endless sea of information can lead you to be more confused than when you started.
Good news, if you want a deep dive into the MLB draft, check out The Moment Guide to the MLB Draft.
If you want to understand everything you need to know about an MLB signing bonus, keep reading.
We are going to break down this topic into three sections.
1) MLB Signing Bonus Structure
The MLB draft is built around a slot system.
It works like this: teams are assigned certain picks (slots) in the draft based on how their MLB team performed the previous season.
The worst teams get the first picks.
The best teams get the last picks.
Major League Baseball then assigns a slot value to each of those selections.
Add up all of a team’s selections, and that is how you get an MLB team’s collective bonus pool.
This is the amount of money a team can spend on its entire draft.
Go over that amount and risk paying an overage tax or worse, losing a draft pick in a following year.
Teams then draft players based on a combination of talent and their ability to sign for them their assigned slot value.
The key aspect to understand outside of the dollar amount is how the bonus is structured.
The typical signing bonus is paid 50% in year one and 50% in year two.
The first payment, on average, is 30 days after approval of the contract.
The second payment, on average, is in the first quarter of the following year.
The higher you are picked, the more leverage you have to negotiate the percentages paid in each year.
Depending on how you approach your overall tax planning strategy, this greatly affects what hits your bank account.
For a full guide on athlete tax planning, check out our Moment Guide on Athlete Tax Planning.
The other key structure to understand is the abandonment clause.
This is a clause teams try to place in MLB draft contracts that allows them to pull back signing bonus money should a player quit the sport in the first few years.
For most players, it pays to remove this clause if the team is willing.
The reason is two-fold:
1. It ensures the players will receive all the money.
2. It ensures the signing bonus is taxed as a true signing bonus (more on that later)
In short, I want you, the player, to have control over not just your bonus but also your tax planning.
Removing the abandonment clause ensures both of those things.
In short, every MLB draftee that signs a draft contract will sign a standard MiLB contract.
This language is set.
Yet as discussed above, there are tweaks to this structure that are critical to understand when it comes to a signing bonus.
A properly structured signing bonus ensures you pay the least amount in taxes and control of your signing bonus payouts.
2) MLB Signing Bonus Taxation
There is so much confusion around taxes and MLB signing bonuses, and this section will teach you exactly what you need to know.
Signing bonuses are earned income, so in short, they are taxed in a similar manner to any salary you earn on the field.
Yet how you get paid them, the moves you make around payments, and the planning needed are quite different.
For clarity, let’s walk through a hypothetical signing bonus of $2,000,000.
Let’s say it is structured as 50% in year one and 50% in year two.
Most MLB teams will withhold 22% for taxes from that initial $1,000,000 payment.
That means $220,000 goes to taxes and $780,000 goes into your bank account.
Now here is where the confusion starts.
You will owe more than 22% in taxes on your signing bonus.
22% is a standard tax withholding on the first million of a signing bonus.
The top federal income tax rate is 37% and your $1,000,000 payment puts you squarely in that bracket.
That means your total tax liability is closer to $370,000 (actually a touch less).
But remember, the team only withheld $220,000.
So you need to set aside another ~$150,000 for taxes come next April 15 (tax filing deadline).
Now the good news is you can (and should be) earning interest on that $150,000 before you have to pay it to the IRS.
The bad news is if you don’t have a team that specializes in athlete wealth management you might have a huge surprise come tax season.
At Moment, our first move after a signing bonus comes in is running a tax projection and setting aside the necessary money needed to fulfill the full tax obligation.
Now, a short aside on state taxes. This blog is not going to dive into the nuances of state taxiation on signing bonus.
Yet you need to understand the role state taxation plays in the taxation of your signing bonus.
In our hypothetical $2,000,000 example a player in CA would be subject to roughly $208,000 in state taxes while a player with Florida residency would pay no state income taxes.
This is another massive tax planning opportunity for MLB draftees and something that we help our MLB draftees with at Moment.
Now, onto the strategies you need to consider with an MLB signing bonus.
3) MLB Signing Bonus Strategies
There are so many things you “could do” with your MLB signing bonus to maximize it.
So I am going to list the four most critical ones to consider, from easiest to hardest.
Maximize your MiLB 401(k)
Major League Baseball made a massive change in 2024.
They created a league-wide MiLB 401(k) plan that newly drafted players are eligible to contribute to.
This is the easiest way for any MLB draftee to reduce their current year tax bill.
Consider our previous example of a player with a $2,000,000 signing bonus.
In 2025, that means a contribution $23,500 into the MiLB 401(k). That equates to a current-year tax savings of more than $8,500.
The key factor here is time; in order to maximize this contribution in the year a player signs, it needs to come out of your signing bonus.
That means enrolling, setting up, and electing the correct contribution in the first 15 days after a player signs.
The reason for this is that most teams require a two-week notice to make any payroll changes. Those changes include 401(k) contributions.
Run a Tax Projection
You don’t want to be like me and have a surprise tax bill come next April.
You want to work with a team that specializes in athlete tax planning.
At Moment, we work directly with the team payroll department to source the paystub and run a tax projection, ensuring every player knows what was withheld for taxes and what will be owed come next April.
Set Aside the Taxes Owed (but not yet paid)
Now, just understanding what you owe is step one.
Understanding how to maximize that money is step two.
For our MLB draft clients, we use low-risk positions that allow players to earn interest on that money until we have to pay it.
In previous years, this has meant thousands of dollars of additional money earned.
State Residency Strategy
Look, state residency is your biggest move as a current or future MLB draftee.
It is the single biggest step to take to save the most money on taxes.
Yet to do it correctly, it is a complex step with lots of moving parts.
You need to structure the signing bonus correctly, navigate the steps of establishing new residency, and ensure your financial team is working in unison with the MLB team’s payroll department.
At Moment, we have walked through this process ourselves and helped MLB draftees navigate these complexities each year.
Yet, it is different for each family, so here is my advice ~ Get educated on the options, the pitfalls, the pros, and the cons so you can make an educated decision.
After all, we have one chance to do this right.
I have an incredible passion for helping the next generation of MLB draftees maximize every aspect of their financial life.
That drive stems from personal experience walking in your shoes.
Personal experience, knowing how hard it is to make money playing a sport.
Personal experience knowing how much subpar information is out there for families.
My mission as always is to help you get smarter with your money and I hope this blog helps you and your family navigate the complexities of an MLB Signing Bonus.
Moment was built to serve the specific needs of professional athletes.
To learn more about how we help book a call today and speak to our team today.
Looking for more ways to get smarter prior to the MLB draft - Check out my YouTube page.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions received regarding athletes and money:
When does Moment start working with future MLB draftees?
We start working with families often a year before the MLB draft. Our goal is to ensure every family is educated on their options and can enjoy the draft when it comes.
Does Moment help players with state residency? Yes, Moment has a checklist we walk every player through to ensure they are compliant in navigating state residency.
How does Moment work with my agent?
Moment works with every major sports agency, and that collaboration ensures all of our athletes maximize not just their signing bonus but their career earnings.
Does Moment provide tax planning and strategy for MLB draftees?
Yes, we handle all of our athletes' tax planning and team coordination. As part of your team at Moment, you will be working with a sport-specific CPA firm specializing in navigating everything that comes with athlete taxation.
*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
