by Andrew Brandt
April 16, 02009
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.