FILING FOR TOUR PROS
Tour pros have it tough at tax time. Well, their tax preparers do, anyway.
PGA Tour pros compete for prize money in multiple American states, and those states expect to take their cut in taxes. This means that, in addition to their federal 1040s, players are supposed to file tax returns in each state where they play.
Most states these days make tournaments withhold state taxes from players’ winnings, says Jim Palsa, a CPA who handles taxes for a PGA Tour professional. Palsa gets a notice from the PGA Tour every month telling him how much the player made, and where.
Could he maybe just . . . forget to file those state returns? “Our feeling has always been to file everywhere,” Palsa says. “If you don’t file in a state, there’s no statute of limitations. Then you’re looking at interest and penalties.”
Some states have been coming after players’ endorsement income, too. Let’s say you had $1 million in endorsement contracts and spent 10 percent of your days this year in California. The state would expect you to pay income tax on 10 percent of that $1 million.
For a closer look at the tax return of a typical PGA Tour player, we consulted Florida-based Art Hurley, who specialises in professional athletes and entertainers. Hurley ran the numbers for us on a hypothetical player who earned $1.37 million in tournament purses last year and $450 000 in endorsement income. This player competed in 29 events in 17 states, plus Puerto Rico, Mexico and Canada. Hurley calculated expenses of about $760 000, including agents, caddies, transportation, lodging, meals, swing coach and a personal trainer.
This data is based on the 2015-’16 season of Patrick Rodgers, whose winnings were close to the median figure on the PGA Tour last season. Note that these aren’t Rodgers’ actual expenses, so we can’t be sure they reflect his true tax situation. But they show how it works.
How much did our hypothetical player owe in taxes? Just under $457 000, meaning – bottom line – his bank account was $597 000 larger at the end of the year. No question, that’s a lot of money by nearly anyone’s standards. But consider that it represents just 33 percent of our player’s $1.82 million gross income and 56 percent of his net income after expenses.
Some other highlights from Hurley’s number-crunching:
▶ Our player’s biggest tax bill came from the IRS ($385 000).
▶ He earned his largest payday in Connecticut ($391 000), and it cost him. He owed the state around $17 700 in income tax on his winnings and another $430 in income tax on his endorsements.
▶ Florida took no such bite from his $142 000 in tournament earnings there, because it has no state income tax. But it saved him most on his endorsement income. As a Florida resident, he was in the state 213 days during the year, or 58 percent of the time, meaning that 58 percent of his $450 000 endorsement income was not subject to state income tax.
▶ His highest tax rate was in Mexico, where the $92 000 he netted (on a $146 000 tournament prize) at a PGA Tour event was taxed at a total of almost 31 percent.
▶ There were four states (Alabama, New York, North Carolina and Ohio) where he competed and missed the cut. Those states can tax a percentage of his endorsement income based on the number of days he was there. But because of his expenses, he was able to show a net loss in those states, meaning he owed no state income tax in any of them.
Keep in mind, states with low taxes often have higher-thanaverage housing and medical costs.