Phil Mickelson Needs to Leave California Legendary golfer Phil Mickelson made headlines earlier in the year after indicating he would make drastic changes to his playing schedule as a result of incurring an uncomfortably high income tax rate. Mickelson, a San Diego, California native, one of the highest-paid athletes in 2012, calculated his federal, state, unemployment and social security taxes to be between 62%-63%. In a January press conference he speculated that one potential remedy would be playing overseas more frequently. He also suggested he might play away from California when participating in domestic tournaments. After all, at 13.3%, California has the highest marginal income tax rate of any state in the country. As Mickelson learned in late July, after winning The Open Championship in Scotland, foreign taxing authorities may not provide as much relief as he hoped. The United Kingdom set the tax rate for Scotland at 45% on income greater than 150,000 GBP. Mickelson’s 1.445 million GBP from winning the tournament were taxed at a rate greater than the highest federal tax rate in the United States. As a U.S. citizen, living in the United States, Mickelson’s worldwide income is subject to federal income tax. While he can take a federal foreign tax credit to avoid double-taxation, he will still be subject to self-employment taxes and the Medicare surtax. To make matters worse, his home state of California does not have a foreign tax credit, so he will pay an additional 13.3% on the entire amount. The other issue with his strategy is that most of his income is derived from endorsements. Forbes estimated that Mickelson earned $48.7 million in 2012, with just $4.7 million earned on the actual golf course. Endorsement money is fully taxable in the player’s home state, meaning Mickelson pays the highest marginal state tax rate in the country on that money. While many athletes make their primary residence in income tax-free Florida, Mickelson could, by moving just a bit east to Arizona, experience a world of savings – Arizona’s highest marginal tax rate is 4.54%. California may be home to the future Hall of Famer, but it certainly hasn’t been inviting from a taxation standpoint. While it’s interesting to hear an athlete discuss the tax ramifications of his schedule, and his strategies to avoid incurring such a high tax rate, Mickelson really needs to move out of California if he wants to avoid paying a 63% income tax rate.
Posted on: Wed, 31 Jul 2013 19:41:06 +0000