NFL Players Consider Tax Burdens as Free Agency Begins

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Posted by Karl Abramson on Tuesday, March 16th, 2021, 11:44 AM PERMALINK

Fans of the National Football League are eagerly awaiting the start of the 2021 league season, beginning Wednesday, March 17th at 4 p.m. ET. At that time, all contracts from the past year will expire and players without deals, so-called “free agents”, will be allowed to sign with a team of their choosing. As these players ponder football futures, any deals they end up signing will be affected by the tax policy of their new home state.

The NFL’s defending champions, the Tampa Bay Buccaneers, have the benefit of playing home games in a no-income-tax state. The Bucs took advantage of Florida’s 0% state income tax last offseason, signing quarterback Tom Brady, regarded as the greatest player of all time, to a two-year deal. Brady is now slated to receive $50 million over the next two years. Had he remained with the Patriots in New England, Brady would’ve owed 5% on his home game earnings to the Massachusetts state government, while the state of Florida confiscates none of Brady’s home game earnings.

With free agency getting underway, let’s take a look at which teams are poised to benefit from state income taxes, and which teams have been put at a disadvantage by tax-hungry governments.

Poised to Benefit: 

  • Las Vegas Raiders: The Raiders moved from Oakland to Las Vegas before the 2020 season, fleeing California’s highest-in-the-nation state income tax rate for Nevada’s zero income tax. In years past, players and agents thinking about signing with the Raiders had to consider California’s 13.3% income tax, a burden lifted by their relocation.

  • Jacksonville Jaguars: The Jaguars own the most cap space in the NFL with an estimated $73 million dollars available to spend on free agents. These funds, paired with Florida’s lack of a state income tax, make Jacksonville an incredibly attractive destination.

  • Seattle Seahawks: Washington, another state with no state income tax, is home to the Seattle Seahawks, a perennial powerhouse in the NFC West. The Seahawks don’t have much to spend this offseason, just a little over $17 million in cap space, however they are likely to attract free agents looking to keep more of their home game paycheck.

Placed at a Disadvantage:

  • New York Jets: The Jets are coming off a 2-14 season, tied for the worst in team history. Fortunately for New York, they have an extraordinary $69 million available to be spent on new players. Signing with the team will bring a hefty tax liability as the Jets play and practice in New Jersey, a state with an 8.97% marginal state income tax rate. Star players may be forced to pay an even higher rate as those earning over $5 million a year face a top marginal state income tax rate of 10.75%.

  • Los Angeles Chargers: Players and agents negotiating with the Chargers must take into account California’s 13.3% top marginal state income tax rate, the highest rate in the country. With the sixth most cap space in the NFL, the Chargers likely will be more hurt by tax-heavy California this offseason then their in-state neighbors, the Los Angeles Rams and San Francisco 49ers.

  • Minnesota Vikings: Minnesota has a paltry $10 million to spend on free agents this offseason, complicated further by a state income tax of 9.85% in Minnesota, fourth highest in the nation. The Vikings, looking to improve on a 7-9 season in 2020, must hope that available players are willing to overlook Minnesota’s excessive tax burden.

Another storyline to watch is the strained relationship between the Houston Texans and Deshaun Watson. Watson, a star quarterback entering his fifth year in the league, is looking to be traded, according to recent reports. Set to make over $166 million dollars in the next five years, the Jets, Miami Dolphins, and Carolina Panthers have been listed as teams most likely to land Watson. 

If traded to New York, Watson would fork over at least $9 million in income taxes, a significant sum of money. Should he be sent to the Panthers, North Carolina’s 5.25% state income tax would cost Watson $4.4 million dollars. Florida’s zero income tax would allow Watson to keep more of his salary and could likely be a factor in determining where he lands in a trade. 

While it is always good policy to allow people to keep more of their hard-earned money, it may just be the key to winning NFL Championships too. A study has not yet been done on the NFL, however a 2011 study from Cornell University’s Department of Economics determined that NBA free agents in the 2000’s performed better after signing with teams in low-tax states than those in high-tax states.  

This upcoming NFL offseason is expected to be one of the most riveting in recent memory as many high-profile players are available in free agency and the trade market, all of whom are certainly considering just how much of their salaries they will be forced to hand over to state governments.

Photo Credit: Marco Verch

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