Super Bowl LI doesn’t kick off until Sunday afternoon, but tax experts already know that both the New England Patriots and the Atlanta Falcons will be winners.
The NFL’s postseason shares structure dictates that the eventual NFL champions will pocket $107,000 each for the game, while the losing team’s players will go home with $53,000 apiece. And because Houston is the site of the big game this year, no one has to worry about the host state getting a share of their Super Bowl money. There is no income tax in Texas.
That means no “jock tax” for the Patriots and Falcons.
The origins of the jock tax
The story goes that after Michael Jordan and the Chicago Bulls beat the Los Angeles Lakers for the NBA championship in 1991, California officials announced that they’d tax the income the Bulls earned while playing in the state. Illinois lawmakers responded by passing their own law on visiting athletes — playfully called “Michael Jordan’s Revenge” — and since then, a number of states have followed suit.
States that have an income tax collect a portion of visiting players’ incomes, as well as the earnings of coaches and other team staff, based on their time in the state. Some cities with income taxes collect jock taxes, too.
At Super Bowl time, the bonuses paid to the participating teams are taxable if the game is in an income-tax-collecting state.
This year’s Super Bowl tax situation is dramatically different from last year’s. Ahead of the game between the Denver Broncos and Carolina Panthers at Santa Clara’s Levi’s Stadium, tax experts noted that Panthers quarterback Cam Newton was likely to see his Super Bowl bonus go to cover California’s jock tax.
Jock tax math
Under a jock tax, athletes and other members of the team are taxed at the state’s — and, if applicable, city’s — regular income tax rate on the time they spend in the taxing jurisdiction performing official activities for their team. This covers practices, team meetings and the full week of pregame activities at the host site leading up to the Super Bowl, as well as the game itself.
In the typical jock tax calculation, taxing departments multiply the ratio of these duty days spent in the taxing state by the visiting player’s salary to arrive at the amount of taxable income.
This math applies at all NFL venues except for those in Florida, Texas, Tennessee and Washington. Those four states have NFL franchises — the Miami Dolphins, Jacksonville Jaguars, Tampa Bay Buccaneers, Dallas Cowboys, Houston Texans, Tennessee Titans and Seattle Seahawks — but no state income tax. (The Oakland Raiders could join the no-tax ranks if the team completes a move to Las Vegas.)
“The quirky thing about the jock tax is that because this income is earned in 2017, it doesn’t just take the amount earned at the Super Bowl, but also what players are going to make next [regular] season,” says K. Sean Packard, a CPA and director of tax at OFS, a financial services firm in McLean, Virginia.
Brady’s big tax break
One big tax beneficiary this year is New England’s star quarterback, Tom Brady.
He got one break in 2016 when, knowing he likely would be suspended for the first four games of the season, he and the Patriots restructured his contract. Under the new deal, Packard notes, he received a guaranteed $28 million signing bonus that the NFL couldn’t touch and a reduced salary: $1 million, down from $9 million. Thanks to that restructuring, Brady’s suspension cost him less than $250,000 in game pay instead of close to $2 million. It also lowered the amount of jock taxes Brady faced for regular-season road games he played leading up to this year’s Super Bowl.
It would have helped with the Super Bowl jock tax, too, if the game were being held at in state that collects income taxes.
Now, however, Brady, his Patriots teammates and their Falcons counterparts — as well as their tax advisors — don’t have to worry about doing extra tax math in connection with Super Bowl LI.
They just have to worry about winning the game.
Kay Bell is a former contributing writer for NerdWallet.