In light of Super Bowl LVI, here are a few facts about professional athletes and taxes that you may not have known about:
The Jock Tax
The Super Bowl this year is being held in California, which is where “Jock Tax” started after the Chicago Bulls won the 1991 NBA Championship and California told Michael Jordan that he owed taxes for playing in LA. In return, Illinois started their “Michael Jordan’s Revenge” tax on athletes and other states followed suit.
The Downfalls of Fame
All taxpayers are expected to pay tax in states when they cross state lines to do business. However, unlike professional athletes, their travel and earnings are not posted all over the web for an auditor to look up. As anyone can pull a sports team’s schedule and contract signing info, states often pursue players if they don’t see any tax returns filed. The amount of income that is subject to tax is based off the duty day calculation to get a ratio of total days working during the year versus working in the state. This ratio is then multiplied by the player’s calendar year income to get the state allocation. In some cases, if a player’s calendar year income is significantly large, but they earned a small amount of money for the one game or tournament, they could actually end up paying more in tax to that state than they earned while playing there.
Cleveland used a less popular method based on game days, which was challenged by players who were not even at the game they were taxed for. Ohio Supreme court ruled in the player’s favor. (Hillenmeyer v. Cleveland Bd. of Rev.)
How Much do The Super Bowl Winners Actually Make?
At the Super Bowl, each Player on the Winning team receives $150,000 while each player on the losing team receives $75,000. Using the duty day calculation, if you assume players will have roughly 200 duty days in the 2022 tax year and would not play in California again you would apportion 3.5% (7 days for Super Bowl Week of the 200 total days) of their total income to California, which would get taxed at their applicable rates. In the case of a player who earns $5,000,000 during 2022, on top of winning the Super Bowl, the player would pay approximately $23,975 in state taxes on the $150,000 bonus, giving them an effective state tax rate of 15.98% when their tax bracket is only 13.3%. Players will also pay federal tax at the 37%.
Yes, You Have to Pay Tax on That
For the MVP of the Super Bowl, in addition to the normal trophy and bonuses they might get, any vehicle or trips they receive would be considered taxable income. These “gifts” would be taxed at their fair market value, much like the obscene Oscar swag bags. Any attendees walking away with a swag bag from the Super Bowl would also have to pick up the FMV of that bag as income. Of course, if anyone chooses to not accept the “gift” or donate it directly to charity (never taking actual ownership) they wouldn’t have to pay tax on it at all as it can be excluded from income.
Super Bowl winners that receive a ring will have to pick up the fair market value of the ring as taxable income. This is one of the key reasons players on the practice squad don’t get the same ring as they often don’t earn as much as the other players. The Buccaneers Super Bowl LV ring was estimated to be worth $35,000.
The Augusta Rule
There is an infamous rental real estate loophole that many deem the Augusta Rule because many people take advantage of it during the annual PGA Masters Tournament. While players earn big bucks, events that many people travel to like the Super Bowl offer a rare opportunity for some tax-free income for homeowners in the area.
Under IRC §280A(g), if a home is rented for less than 15 days during the taxable year the income is not included in gross income nor can the expenses for that period be deducted. Anyone that lives in the area around the Super Bowl could potentially get some extra income in their pocket that Uncle Sam won’t tax.