Tax Increases Can Lead to “Drastic Changes”
Yesterday Phil Mickelson hinted at “drastic changes” he will be making because of increasing federal, state and self-employment taxes. We’re not sure what he means by that, but speculation includes possibly moving from his long-time home of California.
According to Phil, with the increases to all 3 of those tax rates, his total tax burden is pushing 63% of his income. This is the case with most athletes and entertainers. They pay in the highest rate brackets for federal, state, city and self-employment tax. We all know that the new federal rate is 39.6%, but don’t forget the Medicare surtax, the lost itemized deductions and personal exemptions. California now went up to 13.3%. Self-employment tax is again back to 15.3% (2.9% for most of the income) and if you live in a city that taxes you – some up to 3% – you can see how it all adds up.
While drastic, it becomes understandable that people consider moving when you could save that much tax. If Phil makes $5,000,000 a year, let’s ignore the significant endorsement income, his state tax savings alone could be over $650,000 a year if he moved to a state that doesn’t have an income tax.
This poses an interesting question: would you move away from California? If you had enough money to live on, would you keep working if you could only keep 1/3 of your earnings? Let us know in the comments section.