Every year, Sports Illustrated compiles a ranking of the highest-earning professional athletes in the United States. It's headlined by familiar names like Floyd Mayweather, LeBron James, Kobe Bryant and Tiger Woods. Americans for Tax Reform has compiled a report that can serve as a companion to Sports Illustrated's, in which they calculate federal and state tax rates for these same athletes and give a re-ranking.
State tax rates are generally much lower than federal rates, so this doesn't result in much movement. It's still illustrative. Kobe Bryant and Phil Mickelson, both in the top ten of all athletes in the United States, both live in California and both pay by far the most in state taxes. Kobe forks over $6.2 million and Mickelson pays $5.2 million in state and local taxes every year. No other athlete owes more than $4 million in state and local taxes. LeBron James, Floyd Mayweather and Tiger woods don't pay a dime in state and local taxes.
The athlete that might benefit proportionally the most from state and local taxes is Matt Schaub, the Houston Texans quarterback who moves from #27 on Sports Illustrated's list to #16 on ATR's after-tax income list by virtue of a 0% tax burden in Texas. Los Angeles Dodgers pitcher Zack Greinke, meanwhile, moves down five spots from #10 on Sports Illustrated's list to #15 on ATR's.
Kobe Bryant's going to be looking at a similar tax burden again in California next year. Unlike Mickelson, he's stuck in his predicament as long as he plays for the Los Angeles Lakers. Bryant will also collect one of the highest paychecks in all of sports next year, and at $30 million per year, it's unlikely he'll be challenged by other basketball players in the wake of the new collective bargaining agreement. The Lakers, however, have been hearing whispers that the financially prudent thing for them to do is to amnesty Bryant (releasing his contract from their books without any penalties), which would give Bryant some flexibility to look into sports teams with whom he would face a lower tax burden. (Of course, if Bryant were amnestied, the new collective bargaining agreement would prohibit him from seeking a contract anywhere close to the compensation that his current one has.)
Bryant's former teammate and hot-commodity free agent Dwight Howard, who played the last year of his contract in Los Angeles after a trade from Orlando - and probably had some sticker shock from his Californian taxes - might want to keep all of this in mind when making his decision on where to sign this summer. Dwight - take a long, hard look at the offer made to you by the Houston Rockets.
Phil Mickelson made headlines a few months ago for his public discussion of California's high tax rates in the wake of new taxes voted into law in California last year:
California voters in November approved Proposition 30, which, in addition to raising the state sales tax, carries a menu of new tax brackets that hit millionaires like Mickelson hard. For income exceeding $1 million, the state rate jumped to 13.3 percent from 10.3 percent. For Mickelson, who earned roughly $60 million in 2012, that would be a tax increase of more than $1.8 million.
"If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate's 62, 63 percent," Mickelson said. "So I've got to make some decisions on what I'm going to do."
Keep in mind, for all the tax complexity that ordinary Americans face, professional athletes have an incredibly difficult time. Athletes owe taxes to every state in which they played at least one game:
Almost every state with a major league franchise has a law that requires visiting pro athletes to pay taxes on the income they earn there. Most, including Massachusetts, calculate an athlete’s taxable income by measuring the number of “duty days” spent in the state. A duty day is any day on which an athlete is required to participate in team activities, from the first preseason training session to the final post-season game.
Here's the top ten from ATR: