If Tom Brady and the New England Patriots win the Super Bowl again on Sunday, it may cost them more than it did last year.
That’s because last year’s game was in Texas, which doesn’t have a state income tax. This year’s game is in Minnesota, which has a state income tax that runs as high as 9.85%. And because players generally have to “pay where they play,” that could mean a larger tax bill for some — even if they don’t win.
Super Bowl losers get $56,000 each and the winners each get $112,000 this year. That’s over and above any bonuses that might be in players’ individual contracts, says Josh Horowitz, a supervisor at audit, tax and advisory firm WithumSmith + Brown in New York City.
The deal with ‘duty days’
The payout brings up an interesting tax situation, which is that states typically tax NFL players in proportion to the number of “duty days” they spend in the state during the year, Horowitz says. Duty days typically include days spent in training, as well as preseason, regular season and postseason activities. So if a player spends 5% of his duty days in Minnesota, 5% of his income could be subject to taxes there.
Here’s the rub: The top income tax rate in Minnesota is 9.85%, but the tax rate in Massachusetts — home of the Patriots — is only 5.1%, and the tax rate in Pennsylvania, where the Philadelphia Eagles fly, is 3.07% (the city of Philadelphia also has a city wage tax of about 3.5% to 3.9%).
That means players who are residents of Massachusetts could pay nearly double the state tax rate on their Super Bowl earnings because the game was in Minnesota instead of Massachusetts. Likewise, Eagles players who are Pennsylvania residents could pay more than they would at home.
» What’s your tax situation look like? A tax calculator can tell you
To be fair, though, taxes are probably low on the list of things the players are worrying about.
“If I’m a Patriot or an Eagle and I make it to the Super Bowl, I probably don’t care. I probably have an extra tax return that my CPA’s going to charge me [for] that I have to do, but that’s peanuts,” says Ryan Losi, a certified public accountant and executive vice president at Piascik, an accounting firm in Glen Allen, Virginia, that works with professional athletes.
What to do if you work in multiple states
The situation is a valuable lesson for ordinary taxpayers who work across state lines now and then.
“Technically, if you work in another state and you’re physically there, you should be allocating some of your income to that state,” Horowitz says.
In many cases, that means filing a tax return in the state where you live and another one in the state where you worked. But unless you’re making Tom Brady money, there probably isn’t much to freak out about.
First, doing only a little work in another state might not generate a tax bill from that state.
“Many of the states will have a couple-thousand-dollar standard deduction or personal exemption,” Losi says. “Even though you have gross income attributable to that jurisdiction, there’s no taxable income after you apply the various deductions.”
Plus, being a couch potato or a bad singer can pay off — it means you’ll be subject to the tax rules for “regular” people.
“A lot of states, literally they’ll have specific taxing statutes for athletes and entertainers,” Losi says.
Also, your home state will probably give you a credit for taxes paid to other states.
“Most states — not all, but most states — will honor this concept of not double-taxing you, and they’ll give you a credit for the nonresident taxes that are paid or withheld to the other nonresident state,” he says.