Penalty on the Field

Labor Day is fading in the rearview mirror, and that means Official Tax Planning Season™ is in full swing. But instead of thinking about savings, millions of taxpayers are celebrating something else. No, it’s not pumpkin spice. It’s football! High schools play on Friday nights. Colleges play on Saturdays. And the pros play whenever they can find someone to pony up for broadcast rights, which means that pretty soon you’ll be able to spend every single night in front of a set, watching burly men collide into each other as team doctors huddle nervously on sidelines watching for concussions. Free agent quarterback Aaron Rodgers signed for $75 million in guaranteed earnings to play for the Jets – and his season ended after just four plays.

The Cincinnati Bengals have had two great seasons since signing Heisman Trophy winner Joe Burrow. Earlier this month, the usually frugal team set a new league record, re-signing Burrow to a $275 million contract that makes him the highest-paid player in NFL history. Naturally, that got us wondering: how much of that bounty will he actually keep?

NFL salaries start at $750,000, spread out over 18 weeks of the regular season. Quarterbacks average $4.8 million per year. And while you might think QBs are the highest-paid players, that honor actually goes to left tackles at $8.9 million. Those numbers are high enough that the IRS intercepts the maximum 40.8% in income and payroll taxes for at least part of nearly everyone’s pay.

But players face a defensive line of state and local taxes depending on where they play each game. So, Burrow plays half of his games this season in Cincinnati, where he gets sacked for 3.99% in state income tax and 2.1% in city payroll tax. That’s far less than players in high-tax states like California, where they can face a 13.3% rate, or New Jersey, where the Jets and Giants pay as much as 10.75%.

What about away games? Most cities and states levy “jock taxes” to collect the same rates from visitors as locals. This year, Burrow gets sacked for a 5.75% Maryland rate for a game against the Ravens and a 13.3% California rate for a game against the 49ers.

The real winners are the players with no home state income tax at all: the Titans in tax-free Tennessee (say that five times fast), the Dolphins, Buccaneers, and Jaguars in Florida, the Cowboys and Texans in Texas, the Raiders (now) in tax-free Nevada, and the Seahawks in Washington. None of them are favored to come home with Super Bowl rings this particular season. But that’s OK because the unburdened players can buy their own with the money they save by not paying state governments on top of Uncle Sam.

Finally, five teams face a special hurdle this season. The Falcons, Jaguars, Bills, Ravens, and Titans all play in London, England. Whole ‘nother country. American-style football may or may not take off in the birthplace of soccer hooliganism. But King Charles III will surely appreciate his chance to extract some taxes. Hopefully, he won’t abuse that privilege like the last King Charles!

In 2019, an economist named Erik Hembre used data from football, baseball, basketball, and hockey to investigate whether state taxes affect win rates. He found that “higher income tax rates lower team performance, with a percentage point increase in state income tax rates decreasing team win percentage between 0.77 to 0.86 points.” So, in plain English, yes, they do.

Here’s the final score for this week’s story. Sometimes, where you make your money matters just as much as how you make it and how much of it you make. So call us before playoff season to make sure you’re paying as little as possible!