NFP»Columns»The Busine$$ of Football
RSS

A Taxing Day For NFL Players

Players and agents would also try to use their residence in those states toward better treatment on signing bonus payments. I dealt with countless players and agents from Texas and Florida who wanted language in the bonus riders of their contracts indicating they were residents of those states and therefore had no state tax on the earnings. Andrew Brandt

Bookmark and Share Print This Send This April 16, 2009, 10:24 AM EST
18 Comments

With yesterday being tax day across the country, it got me thinking about all the issues NFL players and teams face regarding taxes. There are few that come to mind.

The states without income tax, I felt, always had an advantage in recruiting free agent players. Teams in Florida, Tennessee and Texas used the fact that their states had no income tax to show players how much more they would take home than teams in high income tax states (like Wisconsin). In some cases, agents actually showed me data from other teams showing how much more the player would make over the life of the same contract in one of those states. In recruiting players for Green Bay, I would always hear from agents how much more a player would make from, say, the Buccaneers or Texans compared to the 6.6-percent state income tax that Wisconsin would take from Packer players.  That and, of course, the weather.

Players and agents would also try to use their residence in those states toward better treatment on signing bonus payments. I dealt with countless players and agents from Texas and Florida who wanted language in the bonus riders of their contracts indicating they were residents of those states and therefore had no state tax on the earnings. We would not agree to such language, as our own tax advice was that a Wisconsin company executed the contracts and bonus checks and Wisconsin law governed them. The players and agents could deal with their own accountants and advisers in trying to curry favorable state tax treatment of their bonus checks. That was out of our hands.

Another tax issue that came up in December and was discussed in this space was Federal Tax Code 409A. It was designed to target bloated executive-compensation packages and called for a full tax on signing bonuses and future guaranteed money in the year of the contract negotiation, even if the money was deferred over several years. 

Since almost every NFL signing bonus of any significance is paid out over a period of at least a couple of years, 409A could have had dramatic consequences if the full value of these deferred payments could be taxed in the year negotiated, not earned, potentially affecting tens of thousands of dollars, even hundreds of thousands, depending on the size of the contracts. 

Those affected contracts were brought into compliance through language vetted by the NFL Management Council and the NFLPA to allow for the taxation of deferred guaranteed money in the year of receipt rather than in the year of negotiation of the contract. So the problem was solved, although not without additional headaches for players’ tax advisers. 

Another frustrating tax issue for players, coaches and front office employees is the wage tax. When teams travel to play in certain cities – Philadelphia being the most notable one – their subsequent paycheck has a deduction for that city’s wage tax. The amount reflects the wage tax for the number of days there – usually two – and the proportionate amount of income made for the time in that city. This tax was levied on anyone who made the trip – players, coaches, trainers, equipment men, administrators, etc. Theoretically, a wage tax is supposed to be levied on anyone coming in to do work in a city. Practically speaking, however, the ones targeted with the tax will be the high-wage earners such as entertainers and athletes. It’s a frustrating sight to see these taxes, of which there are several in a season.

For these reasons, preparing tax returns for an NFL player can be a laborious task for advisers as they sift through all the different states in which the player resides, plays in, and played against over the previous year. These are not simple returns of the average worker. Tax day has come and gone but certainly not without a lot of headaches for players and their accountants.

Comments

Add a Comment
bill
Apr 16, 2009
10:51 AM

Wow!

JohnNdallas
Apr 16, 2009
10:52 AM

Good Stuff again Andy!

Thanks!

That's hard for me to say about anyone that could carry the title Esquire.

Thanks!

FairShare
Apr 16, 2009
11:04 AM

It's hard to feel sorry for these high paid sports figures and artists paying taxes to local venues. In almost every case their ability to earn those dollars is made possible by a taxpayer supported stadium, arena or theatre. In many cases they are also probably staying in hotels that are also subsidize. Suck it up and pay your fair share.

Tom
Apr 16, 2009
12:00 PM

Nice post Andrew,

Yes hard to feel sorry for these players on what they make but as a CPA, people do not realize how many others have to go through the hassels of reporting income in other states. Not always high priced entertainers but construction workers, engineers, sales people and many others that make less than six figure salaries who can not afford the help needed to comply with the tax law. We really do need to simplify the tax code.

BigJohn
Apr 16, 2009
12:01 PM

A very interesting column indeed.

Not only does Wisconsin impose a relatively high (6.75 percent) state income tax on high wage earners, but there are several other taxes that are among the highest in the country, the most prominent being real estate taxes.

A nice four bedroom house in Ashwaubenon, where many Packer players might live, worth 500K, would cost the player about 10K per year in taxes.

The overall state and local tax burden to Wisconsin residents, according to the Tax Foundation, is 10.2 percent, making Wisconsin the NINTH worst state in which to work and live, from a tax standpoint.

See http://www.retirementliving.com/tax_burden_2008.pdf

Paul in GB
Apr 16, 2009
12:35 PM

Wow, who knew?

The difficulty in figuring out all the different taxes a pro athlete (or entertainer) is required to pay may explain why we occasionally see them in trouble for unpaid taxes (Rollie Fingers is an example that immediately comes to mind).

BigJohn -
I agree our taxes suck here, but don't forget about our high fees (DMV, DNR, etc.)

JohnNdallas
Apr 16, 2009
01:18 PM

I bet it all comes out about even in the end.
Sales tax in dallas is @ 8.25% Property tax is extremely high too and ditto for vehicle registration, example, I just registered my 2001 truck (here the newer the auto the higher the cost to register) it was 78 bucks and some change.

Andrew Brandt
Apr 16, 2009
01:39 PM
Andrew Brandt

BigJohn-
You had to remind me. Still paying taxes on a home up there. Thanks a lot.


JohnNd-
Thanks, love the line about Esquire.

Graham
Apr 16, 2009
01:54 PM

Taxes an NFL player must pay:

Federal Income Tax: 35% above 350K
Wisconsin State Income Tax: 6.6%

If you make 10 mil a year you are down 5.8 mil before you pay your agent. Agents tipically make 3-5%, (5.8-500k=5.3 Mil). You also need to pay Social Security (6.2% on first 100k very little only $6200) and Medicade 1.5% of your total pay ($150k) so 5.3 -156k you are down to 5.144 million, only half of your "$10 million salary."

And I complaine about my taxes, geeesh.

Franco
Apr 16, 2009
02:22 PM

I absolutely feel sorry for these players. Nobody's giving them this money at gunpoint--they've earned it on the free market. Contrast that with these felon politicians who steal this money, under threat of imprisonment, at the behest of less productive members of society who wish to leach off of people with marketable skills.

Peter
Apr 16, 2009
02:44 PM

I cannot feel sorry for the high-earning athletes. Although teams are paying freely, and of course we as fans all contribute, the highest earners have to play one year and that's then still way higher than what John Doe will be making in his lifetime. Just consider - median income in the US in 2008 was $61,500, average income $45,000. So if you work and make median income for 40 years, you make about 2.5 million in your working life. For the average income, it's not even 2 million - before taxes. Anybody who can play in the NFL for 5+ years will have made more than average Joe can ever dream of. So forgive me if I cannot feel sorry for those players (and coaches nowadays).
the wage tax thing was interesting, though. Brings up questions - what happens if the player in injured and inactive, but joins the team on the road? does that mean wage tax still has to be paid? After all, he technically is not working on that trip...

BigJohn
Apr 16, 2009
03:05 PM

JohnNdallas--I would respectfully beg to differ with the idea that "everything comes out even."

The study I cited says that the average state and local tax burden for Texas residents is only 8.4 percent (versus 10.2 percent for Wisconsin residents).

Thus, a player making $3 mil a year would save something like 54K annually in state & local taxes if he played for the Cowboys versus playing for the Pack.

The study gives Texas a very respectable ranking of 43rd in the country in terms of its level of state and local taxation.

Andrew--I hear you. I write a big check for that every year.

Hopefully WI real estate taxes will not go up; today's Milwaukee JS has a story that the so-called QEO law capping school district budgets may be repealed. Arguably this will lead to higher property taxes.

Just as the NFL is losing its salary cap, so is Wisconsin relative to its education employees.

Next 1 - 12 of 18 Prev COMMENTS

Add a Comment

* Required - Keep track of your comments Login or Register with NFP
(will not be published)