A Closer Look at Taxes on Super Bowl Bonuses
posted Feb 9, 2017 by Mitchell S. Halpern, JD in the Global Tax Blog
To paraphrase a well-known Boston sports journalist, “emptying out the desk drawer of the ‘sports tax’ mind . . .”
Super Bowl LI has some interesting tax subplots. This year, in a miraculous comeback victory, we saw the New England Patriots gain their fifth Super Bowl win over the Atlanta Falcons. So...how do taxes factor into this win?
How much does each player get?
Each player on the winning team will receive $107,000, while each player on the losing team will receive $53,000.
Do state taxes factor into these earnings?
There are always several stories written about the tax impact of these Super Bowl bonuses, especially the state tax consequences of spending seven days in the state where the Super Bowl is played. This differs from the 1 to 2 days spent in the state of each road game played during the regular season. An NFL player is taxed by states for road games based upon the days spent in the state.
This year’s game, however, was played in Texas, which does not have a state income tax.
Does this mean the players will pocket more cash than if the game was played in a state with an income tax?
Not necessarily. Depending on each player’s state of residency, they may still need to pay tax to that state on their Super Bowl bonuses. For example, if a player on the Falcons is a resident of Georgia, or a player on the Patriots is a resident of Massachusetts, they will pay state tax to Georgia or Massachusetts on their Super Bowl bonuses.
To avoid state taxation on their Super Bowl bonuses, a player would need to be a resident of state with no income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming; plus New Hampshire and Tennessee only tax interest and dividends).
What about taxes on the playoff game earnings?
To get to Super Bowl LI, players on both the Falcons and the Patriots participated in 2 previous playoff games – the divisional playoff game and the conference championship game. The players each received $27,000 for playing in the divisional playoff game and $49,000 for playing in the conference championship game.
Both of these games were played on the Falcons and Patriots home fields, meaning that some or all of the $76,000 received is subject to taxation in Georgia for the Falcons players, and Massachusetts for Patriots players, whether or not they are residents of Georgia or Massachusetts.
Federal income taxes on playoff bonuses
The players will also need to pay 2017 Federal income taxes on the playoff bonuses they receive for the divisional playoff game, conference championship game and Super Bowl – a total of $183,000 for the players on the Super Bowl winning team and $129,000 for the players on the Super Bowl losing team.
Under current tax law, this will include income tax (based on each player’s income tax bracket), social security tax (i.e. FICA tax at rate of 6.2% up to maximum amount of $7,886.40 on wages of $127,200), Medicare tax (1.45%) and the additional Medicare tax AKA “Obamacare” tax (at a rate of 0.9%). Since all of the playoff bonus monies will have been paid in 2017, any 2017 tax law changes may impact the taxation of these monies.
To the victors, and the losers, goes the taxes!