Adding Insult to Super Bowl Injury

On Sunday, quarterback Peyton Manning led his uncharacteristically hapless Denver Broncos to the second-most-lopsided Super Bowl loss ever. Manning & Company just couldn't catch a break, from the safety they gave up on the game's first play, to Manning's two interceptions, to Percy Harvin's second-half kickoff return, to . . . you get the picture. So, Manning didn't walk away with that hoped-for second Super Bowl ring. But at least he walks away with the $46,000 bonus the NFL awards to losing players.

Or does he? Well, here's the deal. It turns on two things:

1. New Jersey, like most states, tackles visiting athletes with a "jock tax." The state calculates Manning's taxable income by dividing the number of days he practices and plays in the state by the number of "duty days" he works for the whole year. Then they apply the regular tax rates, which range up to 8.97% on income over $500,000.

2. Next month, Manning heads to the doctor to follow up on a series of surgeries to his neck and spine. If everything still looks good, he plans to return for the 2014 season. If not, he'll ride off into the sunset, go to work as a broadcaster, and wait for his induction into the Hall of Fame.

Now, here's where the play gets complicated. If Manning's neck forces him to retire, he'll finish 2014 with $111,000 in playoff bonuses. He'll owe New Jersey tax for the seven days he worked in the state, out of 33 days he played for the year. He'll hand off $982 in tax, and probably hope he can forget the day ever happened.

BUT — if Manning's neck checks out okay, and he goes on to play next season, he'll earn another $15 million in 2014 salary. Then he'll owe New Jersey tax for a smaller fraction of the season — seven days out of 200, rather than seven days out of 33. But he'll apply that fraction to a whopping $15,111,000 of income. That means he'll turn over $46,844 in tax — $844 more than he actually made for playing Sunday's game!

And this is all before we get to Uncle Sam, who picks off 39.6% for income tax and 3.8% for Medicare. Manning's total tax bill on his $46,000 Super Bowl bonus could hit $66,808, meaning it actually cost him 20 G's to play! Where's the fun in that?

At least Manning still leads the NFL in endorsements. He makes $12 million per year from sponsors including Reebok, Buick, Wheaties, DirecTV, and Papa John's pizza. He should be thankful New Jersey doesn't tax him on a share of that endorsement income. Some U.S. golfers, among other athletes, have had to weigh whether or not to play tournaments in European countries that tax visiting athletes on a share of their endorsement income as well as contest winnings.

So, here's the final score. When you try something new, like earning income from a new venture or in a new place, you can't just add up the numbers at the end of the year and hope for the best. You need a plan to penetrate the tax man's defense — one that anticipates blindside rushers like New Jersey's jock tax. So call us when you're ready for your plan. And remember, we're here for your teammates, too!

Laissez Les Bons Temps Roulez. And Pay Up!

Laissez Les Bons Temps Roulez. And Pay Up!

Last week's Super Bowl in New Orleans was a week-long "fais do do" featuring world-class food, drinks, and music. Advertisers rolled out their newest, shiniest campaigns and newest, shiniest products (Apparently, Anheuser-Busch thinks they need to remind viewers to drink something called "beer"). Sharp-eyed fans even saw a football game between the AFC champion Baltimore Ravens and NFC champion San Francisco 49ers. 

The NFL estimated that the game would bring $434 million to the city. While some economists scoff that the real impact is just a fraction of the official estimate, there's no doubt that the Big Easy was thrilled to host their tenth "Big Game." Most of that revenue goes to the hotels, restaurants, and souvenir vendors who open their cash registers to affluent visitors. (While face value for game tickets was "just" $1,015, the average fan paid $3,000 for his seat.) Millions more goes to the bartenders, waiters, cabbies, and hotel staff that take care of those fans. But some of that money actually goes to the players, too. The NFL gave each of the winning Ravens a ring worth $20,000 plus another $88,000 in cash. The losing 49ers didn't get a ring, but still walked away with $44,000 for their valiant effort.

 So . . . with numbers like those on the field, do you really think the tax man can resist throwing a penalty flag or two? 

It turns out Super Bowl LXVII was pricier than usual to win. That's because Uncle Sam has drafted three rookie taxes for players to tackle. Last month's "fiscal cliff" bill raised the top tax rate from 35% to 39.6% on ordinary income topping $400,000 ($450,000 for joint filers). The fiscal cliff bill also phases out personal exemptions and itemized deductions for taxpayers earning over $250,000 ($300,000 for joint filers). Considering that the 2012 league minimum ranged from $390,000 for rookies to $925,000 for 10+ year veterans, those new taxes will hit every player on the field. And the 2010 Affordable Care Act adds a new 0.9% Medicare surtax on earned income topping $200,000 ($250,000 for joint filers). The 2012-level tax sacks each winning Raven for $41,000; the 2013 "extras" rough them up for another $4,860 or more. 

And Uncle Sam wasn't the only one paying attention. Don't forget the Bayou State and the Crescent City! Much of the money that comes into New Orleans heads right back out to the national corporations that rent hotel rooms, serve those meals, and sell those tacky t-shirts -- but at least it gets taxed locally. On January 30, the Louisiana Department of Revenue issued a helpful two-page bulletin alerting visitors that, "according to Louisiana Revised Statute 47:290, a tax is levied on all nonresident individuals who have income earned within or derived from sources in Louisiana." That "jock tax" reaches 6% on income over $50,000 ($100,000 for joint filers). Louisiana's tax compares with zero in Florida, which has also hosted the Super Bowl 15 times, and a whopping 12.3% in California, which has hosted it 11 times. 

Of course, none of the players actually care how much tax they'll pay on their bonuses. They just want that ring! But there's still a lesson here for some of you. We've said before that how you earn your money makes a difference in how you're taxed. It turns out that where you earn it and when you earn it makes a difference, too. Our answer, as always, is proactive planning to help you make the smartest decision. If you don't already have a game plan, the play clock is ticking!