Tax day has come and gone, and that means many of us had to open our wallets to good old Uncle Sam. The tax man needs his dues, and given the many services the government provides, that might not be such a bad thing. Few of us, however, will be shelling out as much as Peyton Manning, Kobe Byrant, and other pro athletes.
The tax dues for the “big three” sports, the NFL, NBA, and MLB came in at $3.04 billion dollars this year from $8.942 billion paid in salaries. These numbers don’t include earnings and taxes paid from endorsements, business investments, and other sources of income. Regardless, $9 billion dollars is no small sum, especially for a labor force that numbers only about 3,000 people.
Pro athletes paying some of the highest taxes
Athletes pay some of the highest taxes in the country, even among the ultra-rich. While Mitt Romney and other successful business leaders may be effectively taxed at 15% or less, pro athletes are required to hand over an average of 34% of their income. The top tax rate for pro athletes is 41.95%, including both the maximum 39.6% income tax and an additional 2.35% Medicare tax. Deductions for agent fees and other costs, however, bring the effective tax rate down to 34%.
This year actually saw tax burdens expand for athletes. Many pros saw their tax burden increase .9% in order to support Obamacare. So all of us young millennials getting subsidized health care through the ACA owe Lebron James and other athletes a big thanks. On average, pros are paying 1 million dollars per year in taxes.
And let’s not forget that athletes have to pay income taxes to state governments. California, for example, charges a 12.3% tax on income for all income over $508,500 dollars. Florida, on the other hand, doesn’t charge an income tax at all, so Lebron James and his pals on the Miami Heat roster get to dodge that particular bullet. Some states, however, charge “jock taxes” on income that visiting athletes earn while in state. This means that most athletes end up owing taxes to state governments one way or another.
On the hook for state taxes too
The difference in taxes paid can vary greatly by state-to-state, and even city-to-city. For example, the taxes paid by an athlete on $10 million dollars can vary by as much as $800,000 dollars between California and Florida. Unsurprisingly, some athletes, such as Tiger Woods, have already fled high tax states for the greener pastures in low tax states like Florida. Tiger Woods left California behind and headed to the Sunshine State back in 1996, when state taxes were considerably lower than they are now. Tiger later acknowledged that taxes were the driving factor. According to the Wall Street Journal, this move saved him about $100 million dollars.
Other athletes are also contemplating a move to a cheaper state. Phil Mickelson drew a tremendous amount of heat in 2013 after claiming that taxes were forcing him to reconsider his Californian residency. There’s no word yet on whether or not Mickelson will be leaving the Bear Republic behind, but his mansion was recently on the market for just under $7 million dollars, so a new address in a different state may be in his future.
Don’t feel too bad for the pros, at least not before that bill is put into context. Professional athletes are among the highest paid employees in the United States, regularly pulling in 7 and 8 figure yearly sums. Further, the previously mentioned income does not include income from endorsements. Lebron James alone earned $42 million dollars from endorsements in 2013, so he can afford to chip in a bit more to support our infrastructure, health care, social security, and other vital government services.
