Taxes Intercept Millions From NFL Players’ Salaries

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By Ryan Prete

As contracts in the National Football League continue to balloon, so do the tax bills athletes face.

As the NFL regular season reaches its famed holiday playing schedule, Bloomberg Tax analyzed the league’s five highest paid players to illustrate tax burdens at stake.

  •  Matthew Stafford (Detroit Lions): $27 million salary, but receives $14.1 million in net pay (52.2 percent of original salary)
  •  Derek Carr (Oakland Raiders): $25 million salary, but receives $10.9 million in net pay (43.6 percent of original salary)
  •  Andrew Luck (Indianapolis Colts): $24.6 million salary, but receives $13.2 million in net pay (53.7 percent of original salary)
  •  Carson Palmer (Arizona Cardinals): $24.4 million salary, but receives $12.7 million in net pay (52 percent of net pay)
  •  Drew Brees (New Orleans Saints): $24.3 million salary, but receives $12.3 million in net pay (50.6 percent of net pay)
Ryan Losi, financial adviser and executive vice president at PIASCIK, an accounting firm that works with athletes, told Bloomberg Tax that veteran players are mostly accustomed to their steep tax burden, but the story is different for freshman athletes.

“Rookies are often surprised at the cost of taxes, which normally swallow up 40 to 50 percent of their salary,” Losi said. “These are people who go from having little to no taxable income to potentially making millions of dollars and falling into the highest income bracket—it’s a shock to the system.”

Losi noted that rookies who make the final 53-man roster on their respective team are granted a signing bonus during training camp, which is delivered in a lump sum. It’s after the first initial paycheck that he receives the highest amount of phone calls from players concerned about their tax burdens, Losi said.

Federal, State Burdens

All players are subject to federal and state income taxes. Each of the top five NFL athletes analyzed fall into the top federal bracket of 39.6 percent, by far the largest blow to their gross salary. Each of the athletes is also subject to state income tax, which ranges by state.

Derek Carr resides in California, the state with an income tax rate of 13.3 percent—the highest in the nation—while Andrew Luck lives in Indiana, a state with one of the lowest income tax rates—3.23 percent. Despite making $400,000 less than Carr, Luck nets over $2 million more than the Oakland Raiders quarterback, thanks almost solely to his jurisdiction’s low income tax rate.

Duty Days, Other Factors

Every professional athlete is subject to jock tax, calculated by the amount of days a player contributes to “income related work” in a state that administers an income tax.

Days spent in foreign jurisdictions are called “duty days” and are counted on the first day of NFL open practice by every state except Arizona and Michigan, which begin counting duty days on the first day of the regular season, according to Sean Packard, tax director at Octagon Financial Services.

For away games, each team spends at least two days in the state, translating to two duty days.

The two duty days are divided by the annual total of duty days (160), leaving most states the ability to tax 1.25 percent of a player’s total salary.

Because nearly half of the Oakland Raiders’ away games are in states without an income tax, Carr’s jock tax bill—at $84,402—is significantly less than New Orleans Saints quarterback Drew Brees, who plays in California twice (including the preseason) and other high income tax states such as New York and Minnesota, and faces a jock tax bill of $206,766.

High-income individuals making over $200,000 are also subject to a .09 percent Medicare surplus tax.

Lastly, players face an agent fee, which averages around 3 percent of a player’s salary, according to Packard.

Eye on the Prize

Players should take advantage of the league’s financial advising program to help stay aware of their amassing tax burden, Losi said. The program is paid for in part by union dues—consisting of $10,000 taken from each players salary.

“Players shouldn’t run out and try to figure out their complicated tax burdens on their own, they should look to the league for guidance in this area,” Losi said. “The players’ main focus should be making the team, if you don’t make the final roster, you won’t have to worry about taxable income, because there won’t be any of it.”

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

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bloombergtax.com

Copyright © 2017 Tax Management Inc. All Rights Reserved.

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