The perceived percentage of tax to be paid by Jalen Hurts and Patrick Mahomes on their Super Bowl bonuses will be absorbed by their home states in the form of a tax credit.
Introduction
On February 9th, along with the 83,000 spectators attending Super Bowl LIX in New Orleans, 127.7 million viewers (per Nielson) tuned into the game as well. Also taking interest in the game was the Louisiana Department of Revenue. At stake was the tax revenue that was generated for the 9 days of work that the Kansas City Chiefs and Philadelphia Eagles provided in the state of Louisiana. Because of the two team’s participation on Sunday, Louisiana generated over $1 million in tax revenue. Unfortunately, Louisiana’s gain will be Missouri’s and Pennsylvania’s loss as both states provide tax credits to their resident athletes who have paid this tax to Louisiana.
Why can Louisiana Tax the Chiefs and Eagles?
Under the Louisiana tax code, a nonresident individual who is a professional athlete is required to electronically file an IT-540B tax return, reporting all income earned from Louisiana sources.
NFL players are paid during the regular season and are not compensated during the preseason and postseason, but do receive postseason bonuses based on their team’s performance. For this year’s Super Bowl each Eagles' player earned a winning bonus of $171,000 and the Chiefs’ players earned $96,000 in defeat.
If the Louisiana tax were only allocated to the bonus, it would equal $6,686 per Eagle player and $3,499 per Chief player. If you prorate this over each team’s 53-man roster, this would equal $539,805 which is much less than the projected $1 million in tax revenue that the state of Louisiana will collect from the game.
Since those playing in Sunday’s game are contractually obligated to play for their team, Louisiana is able to allocate not only their bonus for the game but also their entire 2025 salary into the state’s apportionment formula. Therefore, nearly doubling the projected tax revenue generated from the game.
The calculation of income from compensation is based on a ratio obtained from the number of Louisiana Duty Days over the total number of Total Duty Days. Duty Days is defined as the number of days that the individual participated in as an athlete from the official preseason training through the last game in which the individual competes or is scheduled to compete.
Under this formula, the Philadelphia Eagles, as a team, will pay an additional $523,010 in Louisiana tax, however the players will receive $400,044 in state tax credits in their Pennsylvania for taxes paid to another state. Kansas City Chiefs’ players will pay Louisiana $509,489 in state tax while receiving a 100% tax credit from Missouri, due to Missouri having a higher income tax rate than Louisiana.
The end result is that of the $1,032,499 in additional tax paid by the players participating in the Super Bowl, Missouri and Pennsylvania will credit $909,533 or 88% back to their resident players, therefore paying the price for their teams' success.
The Case Study of Jalen Hurts
Since the game takes place in 2025, the Eagles' and Chiefs' upcoming season’s compensation along with this year’s post season earnings will be prorated into Louisiana and taxed.
For 2025, Jalen Hurts would allocate $42,857,000 into Louisiana. This amount includes his guaranteed salary is $42,000,000 (as indicated by SPOTRAC.com and overthecap.com) along with the $171,000 player bonus for winning the Super Bowl and the $186,000 for advancing through the wild card, divisional and conference championship games (Per Sportico). Finally next year’s salary will include a 500,000 escalator Jalen receives for winning the Super Bowl.
Jalen Hurts would need to allocate his full 2025 income into the state and prorate it by .0443 (9 days in the state over the total 203 days over the full 2025 season). Rather than allocating only the $171,000 bonus into Louisiana, Jalen Hurts would allocate $1,900,064 and the tax on this income would be $80,171.
Although it could be reported that Jalen Hurts will pay $80,171 in tax on his $171,000 Super Bowl bonus, this is only partially accurate. Pennsylvania offers a tax credit for taxes paid to other states. However, it is limited to only the Pennsylvania tax rate on the income. In Jalen Hurts’ scenario, it would be limited to $58,332 ($1,900,064 at Pennsylvania’s tax rate of 3.07%). Therefore, the added tax on Jalen’s Louisiana income would be the difference between the tax and the credit which would be $21,839.
The Case Study of Patrick Mahomes
Similar to Jalen Hurts, Patrick Mahomes will also allocate his income into Louisiana. In doing so, Mahomes will allocate $2,207,283 into the state for the 9 days he and his teammates were in the state. In Mahomes situation, he would owe $93,228 in tax to Louisiana on the $96,000 bonus. Unlike Hurts and Pennsylvania, Missouri’s tax rate is greater than Louisiana’s tax rate and the state would provide a full tax credit towards Mahomes’ Missouri tax.
Conclusion
By allocating each participant’s full 2025 salary into Louisiana, as opposed to only having to pay tax on the bonuses earned for Super Bowl LIX this inflates the perceived percentage of tax. However, as indicated above, a majority of this tax is absorbed by Missouri and Pennsylvania. Since Pennsylvania’s tax rate falls below Louisiana, the tax credit covers 76% of the additional tax. With Missouri’s tax rate above Louisiana, Missouri’s credit covers 100% of the additional tax. Although the Chiefs lost on the field, the state of Missouri and Pennsylvania are the financial losers of this game.
コメント