Over Easter weekend, franchise quarterback Tony Romo signed a 6-year $108 million contract extension to remain with the Dallas Cowboys. While the estimated $18 million per year makes Romo the fifth highest paid player based on salary, he is actually the new highest paid player after taxes in the NFL.
The Cowboys QB now claims the top spot previously held by Drew Brees of the New Orleans Saints because of no state income tax in Texas. With Romo’s income tax burden being 43.4 percent – the top marginal federal income tax rate of 39.6 percent plus the 3.8 percent Medicare tax – and estimated tax liability of $7.81 million, he still stands to earn $70,000 more than Brees.
Federal Income Tax Burden
State and Local Tax Burden
Total Tax Liability
New Orleans Saints
For illustrative purposes, the federal income tax rate used in 39.6 percent and 3.8 percent Medicare tax. State and local tax rate used is the top marginal income tax rate of each state. The tax rates mentioned also apply only to his contract salary and does not take into account his bonuses, endorsements, other sources of viable income, or structure of contract.
Romo should serve as an example of why businesses and taxpayers are making the move to Texas. Under Gov. Rick Perry, Texas has continued to thrive and experience economic growth throughout the recession because of its low tax rates and economic competitiveness. While a handful of GOP governors are seeking to eliminate or lower their states’ incomes tax rates, such as Gov. Jindal and Gov. Brownback, more players will want to play in states where they will not feel the greatest tax sting. Some teams might even seek to relocate to one of these states.
**Update: Initial difference in earnings and total tax liability for Tony Romo did not take into account the 3.8 percent Medicare tax on his yearly salary. While the new number is less after this addition - from an estimated $752,000 to $70,000 - the fact remains that Tony Romo is still the highest paid NFL player after taxes.
Estimated Contract Salary Before Taxes
After Tax Earnings