Why Aren’t Athletes Salaries Quite as High as They Seem?
Two years ago, a hubbub surrounded Peyton Manning’s enormous tax payment to New Jersey for his Super Bowl earning, but Cam Newton, Carolina Panthers quarterback is now facing a tax bill to California for twice as much due to California’s tax rate of 13.3 percent, the highest in the country. Although tax rules apply to anyone doing business across state lines, they are rarely enforced except as “jock tax rules.”
For athletes, California taxes are based on annual income, applying a calculation that takes the ratio of days worked in the state over total days worked during the year. That ratio is multiplied by the player’s salary to come up with the state’s tax on a player based on his or her calendar-year income.
Cam Newton, who signed a 5-year, $103.8 million contract extension this past June, has already earned $58,800 for week 17 of the 2015 season and $71,000 in playoff bonuses. He is due a $10 million signing bonus and $13 million in base salary for the 2016 season. Fortunately for him, week 17 of this next season will occur on New Year’s Day of 2017, protecting him from over three-quarters of a million dollars in California State taxes.
Nonetheless, looking only at the 7 days Newton will be spending in California this week for
Super Bowl 50, he will be paying the state between $101,600 on $102,000 of his income if the Panthers win and $101,360 on $51,000 of income if they lose.
Though his income appears to be astronomical, Newton will pay California 99.6 percent of his Super Bowl earning if the Panthers win or 198.8 percent of his earnings if they lose. In addition, of course, he will be paying the IRS 40.5 percent of his overall earnings.
Though most people would be delighted to earn the income of professional athletes, these celebrities suffer tax burdens paralleling the rest of the population. Unlike the rest of the population, their taxes vary widely, determined in large part by which states they play in. While California charges them the highest state tax of 13.3 percent and New York charges them 8.82 percent, they pay no “jock tax” in Florida or Texas.
Whether you are an athlete, a small business owner or the CEO of a corporation, dealing with the high state taxes of California is a challenge and you are wise to use a savvy tax planning attorney to assist you in retaining as much of your hard-earned income as possible.