Welcome to California, Cam! The quarterback for the losing team in this year’s Super Bowl earned a $51,000 bonus for his trouble. Did he really lose money on the deal, after taxes? K. Sean Packard reports that he loses money on the deal. Is that even possible?
Before we get into the numbers, let’s do a quick review of the jock tax rules applied to professional athletes (similar tax rules apply to anyone doing business across state lines, but they are rarely enforced). States tax a player based on their calendar-year income. They apply a duty day calculation which takes the ratio of duty days within the state over total duty days for the year. That ratio is then multiplied by the player’s salary to arrive at a state’s allocable income.
According to the story, Cam Newton will have about 206 “duty days” this year. Cam Newton’s 2016 salary is $20 million. The Super Bowl gave Mr. Newton 7 California duty days. So, the numbers, as I compute them:
$20 million x 0339805825 = 679,612 income allocated to California
California’s tax on $679,612 x 13.3% 90,388. Add the 13.3% on his $51,000 allocated to California, which is not included in the $20,000,000 base, and he owes another $230, for a total California hit of $90,618. That will reduce his federal taxes by about $35,885 (39.6% x 90,618), so his net California hit for the 7 Super Bowl days is $54,733. Considering the 40.5% federal tax on his additional $51,000 of wages ($20,655), Mr. Newton takes a $75,388 net tax hit on his $51,000 earned — a combined 147.8% marginal rate.
If Mr. Newton is a North Carolina resident, he would have paid some of that money in resident state taxes. If he is a tax-savvy Florida resident, it’s all loss. Sort of like the game Sunday.
We are all Cam Newton. Not all of us can play football at a high level, but all of us can face similar issues working in another state. Contrary to what the article above says, taxes on cross-border visits aren’t just “rarely” enforced. Some states, including California and New York, enforce these taxes with vigor. Entertainers and corporate executives are the easiest targets, but improved data-mining has allowed states to go downmarket in pursuit of income from workers in-state on short assignments — whether on a consulting or accounting job, or on a sales call.
This creates a potential compliance nightmare for employees who work in multiple states. And if you are a resident of a high-tax state, it’s a nightmare that may not even cost you additional tax, because of credits allowed for non-resident state taxes. Just additional time and prep fees — and potentially ugly penalties if you fail to file in a state you visit briefly.
That’s why the Mobile Workforce State Income Tax Simplification Act would be a good thing. By limiting state taxes on most employees to situations where they spend at least 30 days in a state, H.R. 2315 would save employees and employers a great deal of pointless compliance hassle. By going to http://www.mobileworkforcecoalition.org/contact-congress/#/ you can tell your Senator to get behind the bill. As Senator Grassley is on the Senate taxwriting committee, he especially needs to hear about it.
Unfortunately for Mr. Newton, it wouldn’t apply to athletes (an unfair exemption, apparently required politically), but it at least H.R. 2315 would keep itinerant accountants out of multi-state tax purgatory.
Russ Fox, IRS Must Pay Fees in Civil Forfeiture Case. “I am not a fan of civil forfeiture as currently practiced: It’s being abused widely by the government. Indeed, some government police agencies consider it a part of their normal funding!” Institute for Justice is also pursuing fees in the case of the Northwest Iowa restaurant owner whose cash was confiscated by IRS. Russ encourages contributions to IJ; I’m a donor.
William Perez, Free Tax Preparation and Tax Problem Resolution Services
Jason Dinesen, Why Yes, I Am “Just” An Enrolled Agent. The EA designation is impressive, and contrary to the attitude of an accountant Jason encountered, CPAs have no cause to be snotty to EAs.
Robert Wood, Hillary’s Wall Street Speech Fees: Hers Or Clinton Foundation’s?. I think that’s a distinction without a difference.
TaxProf, The IRS Scandal, Day 1006
Joseph Thorndike, Bernie Sanders Wants to Soak the Poor — Just Like FDR (Tax Analysts Blog). “Ultimately, however, the most revealing linkage between Sanders and FDR resides not in a shared impulse to tax the rich, but in a common willingness to soak the poor.” You can’t have a mass welfare benefit paid for only by a class tax.
I can’t find this tax rule in the code. A taxpayer brought a novel approach to determining his income to Tax Court in a case released yesterday. The gentleman is of the tax defier persuasion, feline variation (my emphasis):
The Court inquired whether he had any evidence to submit regarding his receipt of income during 2011 from BDL Films, Partizan Entertainment, Avatar Films, or Western Federal Credit Union. He replied: “I don’t even know what you mean by ‘income.’ I have my own definition of income.” Asked what that definition was, he replied: “It’s a cat with a pink bow. I earned no income. I’m in my own jurisdiction. * * * I am not part of the legal society; I have my own society.”
I suspect that his earnings were not routinely paid in cat, with bows of any color. The Court wasn’t persuaded, either:
The petition that petitioner filed in this Court consists solely of frivolous arguments. We warned petitioner four times — twice in advance of trial and twice during trial — that he risked incurring a significant penalty if he persisted in advancing frivolous arguments. He persisted. He has deluged this Court with gibberish and has wasted the resources of respondent’s counsel and this Court. We will accordingly require that he pay to the United States under section 6673(a) a penalty of $3,500.
$3,500 is a lot of kitty litter.