San Francisco 49ers QB Trey Lance signed a $ 34 million contract. How A lot Will California Tax Go?

Days after rookie quarterback Trey Lance signed with the San Francisco 49ers after finishing third overall on the National Football League draft, a picture posted on Instagram sparked a debate about how much of his $ 34.1 million Dollar deal could be used for California income taxes.

Released May 3, the image features a photo of the laughing California Governor Gavin Newsom superimposed on a photo of Lance on Draft Day. The text in the picture says: “After taxes in California, Trey Lance’s $ 34.1 million rookie deal is now only $ 16 million.”

It was originally published by Sports for Simps, an account with around 17,000 followers that shares football-themed content. It was later re-shared by Catchcentral Sports HQ, a site with more than 70,000 followers.

The original post contained a headline that read “Californians: OUR CONTRACT,” a reference to a number of memes that mock socialism. It received over 17,200 likes and 1,600 comments, many of which criticized California income tax rates.

But are the numbers in the picture correct or is this a false start?

Facebook featured this image as part of its efforts to combat false news and misinformation on its news feed. So we decided to find out. (Read more about PolitiFact California’s partnership with Facebook.)

Run numbers

Lance’s contract with the 49ers calls for him to receive a $ 22.1 million signing bonus from the team in addition to his annual salary. His entire contract is valued at $ 34.1 million and is valid for four years with the option to extend for a fifth year.

For example, let’s say Lance lives in California, signs up as an individual, and claims an income of $ 34.1 million. At current tax rates, he would pay around $ 18.1 million in federal and state income taxes. Of that $ 18.1 million, roughly $ 830,000 would be deducted in wage tax, about $ 12.6 million would be claimed by the federal government, and California would be owed $ 4.5 million. After Lance paid those $ 18.1 million in income taxes, Lance had about $ 16 million left – though he may also have to pay property taxes if he owns real estate and sales taxes on items he bought.

However, since the contract runs for four years, Lance does not receive the full amount of his contract upfront. During this time, his salary is paid according to a set schedule. Traditionally, the NFL has also paid large signing bonuses in multiple installments. However, this is part of the contract that is negotiable, and Lance’s agents will likely try to cash out his signing bonus as a lump sum, as Nick Bosa has received his bonus as a one-time payment from the 49ers since 2019.

According to tax experts, there is a tax impact on whether or not Lance receives his money all at once or in multiple installments over several years. Income taxes are progressive, which means that the tax rate increases from low to high over the amount a person earns. For someone filing as an individual in California, any income above $ 599,012 will be taxed at 12.3%. There is also a 1% mental health tax on income over $ 1 million. However, the income below these bars is taxed at lower rates.

For Lance, this means that his first income of $ 599,012 will be taxed at a lower tax rate than any income he claims for a given year and that he will not tax psychiatric services on his first million dollars has to pay per year. By distributing his income, he can make the most of those lower tax rates, said Alan Auerbach, professor of economics and law at UC Berkeley and director of the Burch Center for Tax Policy and Public Finance.

The same concept applies to federal income tax. By distributing his income, Lance was also able to make savings there. Nationwide, the maximum rate is currently 37% of income over $ 518,400.

Other factors that could skew tax estimates

There are a number of other complications that make it difficult to determine how much Lance could pay in taxes over the next four years.

He could see his taxes rise as his income goes up because he signs advertising contracts or sets other streams of income. You could go under if he chooses to donate money and use tax breaks for charity. Its taxes could also be affected by future uncertainties. For example, Lance could get married, which would change his registration status, or have a child who would make his taxes dependent.

Outside of Lance’s personal life, a bill is currently pending in the California Senate to raise the state’s top tax rate to 16.8%. The law would also apply retrospectively from January 1, 2020.

David Kline, vice president of communications and research for the California Taxpayers Association, said the bill is not expected to be passed this year. However, other bills have been proposed that could affect the tax burden on high earners, and Kline said it was “impossible to predict” what might or might not be approved by lawmakers over the course of four years and it was difficult to a calculate tax bills with no knowledge of how Lance’s money and life could change.

“We always warn that there are many variables that affect income taxes,” said Kline. “It’s important to let people know that it is impossible to determine the exact amount without the taxpayer’s filing status, number of dependents, total income from other sources, possible losses, whether or not a mortgage interest deduction is applicable to know the amount of charitable deductions and other details. “

What are the taxes of other newbies?

Many of the comments on the picture posted on Instagram resulted in comparisons between Lance’s taxes and those of others in the 2021 first-round draft, notably Trevor Lawrence, the first overall winner in this year’s draft that won the Jacksonville Jaguars on a $ 36.7 million deal. Dollar signed.

The comments stated that California has the highest state income tax rate in the nation. Florida has no income tax, so Lawrence would be primarily concerned with his federal taxes, which are estimated at around $ 13.6 million. Ultimately, Auerbach and Kline said that in the first-round draft, Lance will almost certainly pay more tax than Lawrence and most of the others.

“Athletes who play for California teams pay higher taxes than any of the other 49 states,” said Kline.

That doesn’t mean Lawrence and other players will get away with it in low-cost states, however. One complication related to taxes for NFL players is that they must also pay income tax when they travel for games and exercises – a levy known colloquially as a “jock tax”.

It means that every time Lance travels for a game outside of California, he collects bills in other states based on his annual salary and days worked in that location, and every time a player is in from outside California for a game or practice session Coming to the State Tax law requires them to pay for the “service days” they spend in California.

Since California has the highest income tax rate in the country, Auerbach said most of the state and local taxes Lance pays while traveling should be deductible from his California tax bill, which means they likely won’t affect the total amount he pays Taxes.

However, they would potentially impact its competitors outside of California. In the past, Kline said California also taxed athletes’ income for performing elements of their contracts in the state.

“When a Florida resident like Tiger Woods, California, entered a gold tournament wearing a Nike hat, California attempted to tax part of the Nike advertising contract on the grounds that part of the income came from wearing the hat in California. ” Said Kline.

California’s Franchise Tax Board, which collects and reviews income taxes, writes in its Residency and Sourcing Technical Manual that endorsement cash may be taxed when an athlete “wears or uses” [a] Sponsor’s product, “Promotional” or “Photo and Film Day Participation” on and off the field in California. That means Lawrence and other players outside of the state could pay a pretty penny to advertise Nike or Adidas on Lance’s home turf.

Our decision

A picture posted on Instagram said rookie quarterback Trey Lance, who recently signed with the San Francisco 49ers, will take home $ 16 million from his $ 34.1 million deal after paying California income taxes becomes.

Given current tax rates, this seems like a reasonable estimate of how much Lance could take home on his contract with the NFL after paying federal and state income taxes. He will pay significantly more federal income taxes than state income taxes – about $ 12.6 million compared to an estimated $ 4.5 million.

In addition, tax experts warn that it is impossible to determine exactly how much Lance will pay in taxes as his tax burden is affected by, among other things, when he earns his income, enrollment status, and charitable donations.

Lance could also get advertising deals that would increase his income and affect his taxes. Since his contract with the 49ers is for four years, he could be affected by changes in state and federal tax rates and laws related to tax breaks and withholding taxes.

And while Lance will almost certainly pay more state income taxes than some of his low-cost rivals, they’ll face the same high tax rates every time they face the 49ers in Santa Clara.

In short, while the estimate is reasonable, it is exactly that – a rough estimate that lacks a bit of context. Hence we rate this claim as half true.

HALF TRUE – The statement is partly correct, but leaves out important details or takes things out of context.