Even though Tom Brady lowers his non-resident tax by over $20,000 by playing in this year’s Super Bowl in Texas, his home state of Massachusetts will make him pay, win or lose
Although all income is subject to federal tax, where the bonuses from this year’s NFL playoffs and Super Bowl becomes interesting, is at the state level. With last year’s Super Bowl played in California, all those who participated needed to allocate both their Super Bowl bonus, and their entire salary into the state. A combination of California’s allocation formula (duty days), the state’s high income tax rate and Cam Newton’s salary would cause him to owe $52,715 in non-resident state tax to California just for playing in last year’s Super Bowl. To add insult to injury, when you consider that his bonus for playing in the game was only $51,000, (his tax rate was an astronomical 103.36%) he paid money to lose the Super Bowl.
With this year’s Super Bowl in Houston Texas, a state that does not levy income tax, Tom Brady and his teammates will not face the same non-resident tax issue. Team members of the Super Bowl LI’s (51) winning team will each earn a bonus of $107,000, while members of the losing team receive $53,000. As mentioned in examining Newton’s situation last season, the consequences of how this bonus is taxed will not only depend on the physical location of the game but the individual player’s salary, the number of days in the season (including the post season), and the player’s state of residence.
Game location
NRG Stadium in Houston, Texas is one of seven National Football League (NFL) stadiums located in a state that does not tax on income. Of the 22 states in which the 32 teams play, 18 states implement a tax on non-resident athletes, known as the ‘jock tax’. Texas, along with Florida, Tennessee and Washington are the four states host to NFL teams that do not tax income.
State of residency
Even though Patriots’ and Falcons’ players will not face tax on their Super Bowl earnings in Texas, it doesn’t mean that players on both teams will escape taxation at the state level. The additional income will be allocated to and taxed in each player’s state of residency (or home state). Therefore, players from the Patriots and Falcons who reside in Massachusetts and Georgia will need to allocate their bonus for the Super Bowl back to these states.
Player’s salary and number of duty days
The net result of how much state-tax a player will pay on their bonuses will be related to their total salary. Players are paid over the length of the season and their income is allocated into each state they perform services in. A percentage is computed by counting the number of days they are in each state in relation to the total number of days in the season. The formula, known as duty day allocation, takes into consideration all the days the athlete was required to participate in team activities, including the preseason and postseason. Therefore, for every day the season is extended the duty day allocation into each state is affected.
Tom Brady
Including off season workouts, training camp and post-season games, Tom Brady will be employed for 220 days in 2017. Even before playing in the Super Bowl, Tom Brady earned an additional $76,000 for the Patriots two playoff wins that will need to be included to his salary. By playing in the Super Bowl he is guaranteed at least a $53,000 payout just for participating in the game, and $107,000 if the Patriots win.
To understand this season’s tax consequences for Patriot’s quarterback Tom Brady, the table below shows both his federal and state tax depending on whether he wins or loses Sunday’s game:
Tom Brady’s Salary and Tax Liabilities for 2017
Tom Brady
Income
Net Income
Federal
MA Tax
NR tax
NR Credit
No Playoffs
$14,000,000
$7,562,944
$5,689,768
$713,623
$114,714
($81,048.65)
Super Bowl Win
$14,183,000
$7,665,638
$5,768,962
$722,956
$94,490
($69,045.42)
Super Bowl Loss
$14,129,000
$7,636,655
$5,746,797
$720,202
$94,129
($68,782.54)
With the number of duty days increased by their playoff run, Tom Brady has lowered his non-resident state tax by over $20,000 win or lose. However, a closer look reveals that along with the decrease in non-resident tax, there is a corresponding decrease in non-resident credits (the state of Massachusetts will give tax credits to it residents for taxes paid as a non-resident in other states) and increased tax in resident state tax. Meaning, should the Patriots win on Sunday, Massachusetts will collect $21,366 in additional revenue (minus credits) from Tom Brady, if they lose they will only receive $18,845.
Win or Lose Georgia and Massachusetts will cash in on additional tax revenue
Last year, in Super Bowl 50, the State of California generated over $869,306 in non-resident tax on income earned by the Broncos and Panthers. This year Texas will receive none.
As shown above, players from the Patriots and Falcons who reside in Massachusetts and Georgia will need to allocate their bonus back to their resident state. Unlike last year when North Carolina and Colorado provided tax credits to their residents for the tax paid to California, Massachusetts and Georgia will be able keep the entire tax revenue. Therefore, Texas’s loss is Massachusetts’ and Georgia’s gain.
The following two tables reflect the additional revenue that Massachusetts and Georgia will collect from player’s Super Bowl bonuses:
State of Massachusetts Tax Revenue: New England Patriots
New England Patriots
Massachusetts Tax Revenue
Super Bowl Win
$269,219
Super Bowl Loss
$123,257
Last year, California collected non-resident tax from both teams, Massachusetts will only be able to tax residents from the New England Patriots. By comparison, Massachusetts’s tax rate of 5.1% is significantly less than California’s 13.3% and therefore the revenue they will collect from the Super Bowl will fall well short of what California collected last year.
State of Georgia Tax Revenue: Atlanta Falcons
Atlanta Falcons
Georgia Tax Revenue
Super Bowl Win
$302,100
Super Bowl Loss
$130,380
With a maximum tax rate of 6%, Georgia will collect more tax revenue from their player’s bonuses than Massachusetts will from theirs. However, as the two tables above indicate, even when you combine the two states tax revenue from the Super Bowl (Patriots win $399,599 – Falcons win $425,357) it is still less than half of the tax revenue California collected last year.
Summary
As the above analysis indicates, state tax issues for professional athletes can be confusing and potentially costly. Although, this year’s Super Bowl is played in a state with no income tax, state tax consequences still exist. Along with their resident state tax liability, professional athletes also need to allocate their income into each state and city jurisdiction in which they play. Residency, duty days and t salaries will affect the overall tax liability. With 20 of the 24 states in which professional athletes play implementing their own version of the ‘jock tax’ it’s important to have professional guidance from an individual who specializes in understanding all the unique issues that face professional athletes.
ALAN POGROSZEWSKI is President of AFP Consulting LLC, which specializes in the consulting and preparation of professional athlete’s international, federal and state taxes. Mr. Pogroszewski is also the creator of the Jock Tax Index (JTI) which was presented at the 2015 MIT Annual Sloan Sports Analytics Conference and has also been featured on “Off the Charts” by Scarlet Fu on Bloomberg Television’s Market Crashers. The JTI was used in determining the calculation in the above article as it measures how much a team’s location dictates the tax burden on an athlete because of the jurisdiction’s income tax policies and allows individuals to compare the net take-home income after tax liabilities and credits of any contract proposal between competing offers from different tax jurisdictions.