The Masters Drives Unique Tax Burdens for Golfers

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Ryan Prete

The professional golfer crowned Masters Tournament champion will walk away with over $1 million post-tax.

The winner of the esteemed Green Jacket—and the first major of the Professional Golf Association (PGA) season—is projected to receive $1.98 million in prize winnings. Golfers Tiger Woods, Phil Mickelson, Jordan Spieth, and company will be in pursuit of the title and the cash as the first round gets underway April 5.

But how will they be taxed?

Below, Bloomberg Tax breaks down the tax burdens and explains why a Masters champion only takes home approximately 52.4 percent of the nearly $2 million prize.

‘More Complicated’ Burden

Golfers are subject to a much tougher, more stringent tax regime than athletes who are part of professional sports organizations like the National Football League, National Basketball Association, or Major League Baseball, according to Ryan Losi, financial adviser and executive vice president at PIASCIK.

In those leagues, players are hit by jock taxes calculated by the amount of “duty days” a player contributes to “income-related work” in any state that administers an income tax.

“Golfers face a much more complicated tax burden than league-based athletes,” Losi said. “The administrative costs are higher, and therefore the compliance costs are greater.”

$1.04 Million

A U.S. golfer who wins the Masters will receive an estimated $1.04 million after factoring in state and federal taxes. Golfers who reside in other countries are subject to different tax structures, but would also pull in over $1 million post-tax.

Golfers are self-employed, according to Losi, which means they pay taxes based on the tax rate of the state in which they win. The Masters Tournament has been played since 1934 at Augusta National Golf Club in Augusta, Ga., so that winnings are taxed at Georgia’s 6 percent income tax rate.

Because golfers are self-employed, they must pay self-employment taxes of 12.4 percent on the first $128,400 of their yearly income. Professional golfers also pay a 2.9 percent Medicare tax on all of their income. If they make more than $200,000, then they pay an additional 0.9 percent Medicare surcharge.

They also must pay federal income taxes, and because the nearly $2 million dollar championship prize falls in the top federal tax bracket, golfers can expect to forgo 37 percent of their winnings.

Taxing Endorsements, Other Income

Meanwhile, a majority of the PGA’s best and most well-known players—such as Woods, Mickelson, Spieth, and Rickie Fowler—derive the majority of their income not from prize winnings, but from endorsements and other sources of income.

This income is subject to taxes based on where a player resides.

Woods and Fowler potentially save millions of dollars a year in taxes by residing in Florida, which doesn’t administer a state income tax. Spieth calls Texas home, another state income-tax-free region.

However, Mickelson resides in California, which has the highest state income tax rate at 13.3 percent.

In 2017, it was reported that Mickelson was paid $33.5 million from “off-course” sources. At that rate, Mickelson would have paid $4.46 million in California state income taxes.

Similar to Olympics

Professional golfers’ tax burden structure is similar to that of Olympic athletes, who face state income taxes on prize winnings received in the U.S. for events outside the Olympics, according to Sean Packard, tax director at Octagon Financial Services.

“Olympians are independent contractors, so they pay taxes based on where they earn their money, per event,” Packard told Bloomberg Tax.

For Olympians, tax burdens are on an event-by-event basis. So if gold-medalist Shaun White travels from his home in California to Colorado to compete in a snowboarding tournament, he would pay Colorado’s 4.63 percent income tax rate on winnings earned while there. If White resided in Colorado for more than half the days a year (183), he would be subject to its state income tax on the entirety of his earnings, Packard said.

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

Copyright © 2018 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State