As reported by ESPN’s Adam Schefter and other media outlets, the Dallas Cowboys and quarterback Dak Prescott have signed a four-year deal worth $ 160 million. The deal reportedly includes a $ 66 million signing bonus – the highest in NFL history – with a $ 126 million guarantee, and pays Prescott an average of $ 42 million a year for the first three years of the deal.
The 27-year-old Prescott becomes the second highest paid quarterback in the NFL after Kansas City Chiefs QB Patrick Mahomes, who makes $ 45 million annually.
Prescott is from Louisiana and played his college ball in the state of Mississippi. He’ll also benefit from playing in Texas – one of nine states with no income tax on wages. Assuming Prescott also lives in Texas, he plans to keep approximately $ 75.5 million of the $ 126 million. Our figure reflects Prescott, who pays the highest federal tax rate (37%) on that portion of his income that exceeds $ 518,401 (or, if he’s married, any income that exceeds $ 622,051). We also take into account the projected wage taxes and the projected athlete-facing taxes, also known as jock taxes.
The financial advantage to Prescott of playing for the Cowboys is immediately apparent when we compare his guaranteed after-tax money to Mahomes’. While Mahomes will bring in $ 15.4 million more guaranteed wages – $ 141,428,000 to $ 126,000,000 – he’ll only do Prescott best after tax at about $ 243,233 (assuming Mahomes lives in Kansas City). Missouri state income tax is 5.4% and Kansas City local income tax is 1%.
It is clear that there is no certainty about forecasting tax numbers as the key factors could change over the next four years. For example, federal tax law could change to increase (or decrease) the percentage paid by the highest income earners in the country. The Texas Tax Act, as well as the Tax and Jock Tax Act in other countries, could change. And while it’s unlikely, Prescott could be sold to a team in a state with an income tax. Texas also offers other taxes that Prescott will face. The state’s sales and use tax rate is 6.25% and can go up to 8.25% in certain areas of the state.
The story goes on
Still, Prescott is going to make a fortune, and it will be improved by playing in Texas.
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