The Decision: NBA's Dwight Howard Chooses No State Income Tax Texas Over California


Posted by Matt Blumenfeld on Tuesday, July 9th, 2013, 4:54 PM PERMALINK


Dwight Howard informed the Los Angeles Lakers on Saturday that he would not be signing with the famed basketball franchise, instead choosing to become the newest member of the Houston Rockets. Whether Mr. Howard will experience more success as a Rocket than a Laker is yet to be seen, but the All-Star center can rest assured that he will earn more for his efforts in Texas rather than California.

Had Howard decided to remain with the Lakers, he could have received a max contract of $119 million over five years. Houston, on the other hand, can only offer a max contract of $88 million over four years under the new rules of the Collective Bargaining Agreement. While the difference in pay is one year and $31 million, Howard will actually earn $2.1 million more after taxes by signing with Houston:

Team

Total

Tax Burden

Total

Tax Liability

Annual

After-Tax Earnings

Houston Rockets

43.4%

$9.6 million

$12.4 million

Los Angeles Lakers

56.7%

$13.5 million

$10.3 million

For illustrative purposes, the total tax burden is comprised of the top marginal federal income tax rate of 39.6 percent plus the 3.8 percent Medicare surtax plus the top marginal income tax rate of California (13.3%) and Texas (0%). Additionally, figures based on estimated annual pay from Lakers ($23.8 million per year) and Rockets ($22 million per year).

Additionally, if Howard were to remain in Los Angeles, he would have to hand over his paycheck for five and a half home games to the state of California to cover his state tax liability. By signing with the Rockets, Howard does not have to worry about the state committing a flagrant foul against his earnings.

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