Putting for Dough

8/5/2013

August is almost here, and golf season is in full swing. Duffers are filling the air with curses as colorful as their outfits, and, although Tiger Woods has returned to the top spot as the number one ranked golfer in the world, Phil Mickelson is the current man of the hour. Earlier this month, he took a one-hole playoff to win the Scottish Open at Inverness, and just one week later, he posted a 3-under 281 to take the British Open at Muirfield.  

Mickelson's £1,445,000 in winnings in Scotland and Great Britain translate to almost 2.2 million U.S. dollars. Obviously, this income will be taxed. However, as we’ve discussed before, the rules for taxes and athletes are not always cut and dried. In fact, Mickelson has already told the world how he feels about paying taxes. Back in January, he said he might leave his home state of California because of recent hikes in federal and state taxes. These include 39.6% for Uncle Sam (up from 36%), 3.8% for Medicare (up from 2.9%), and 12.3% for the Golden State (up from 9.3%). "If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate [is] 62, 63 percent," he was quoted as saying in Yahoo Sports. "So I've got to make some decisions on what I'm going to do."  

But now, Mickelson's U.S. taxes may seem pretty reasonable when he considers what he'll pay on his recent Scottish winnings. For starters, he'll pay the United Kingdom a wee bit over 44% on his tournament purses. The U.K. will then also take a divot out of any bonuses he receives for winning those tournaments, plus they'll take a chip of the bonuses he gets at the end of the year for his overall tour ranking. And that’s not all. The U.K. won't just tax Mickelson on his tournament winnings – they’ll also tax him on part of his endorsement income for the two weeks he spent in-country. Forbes estimates he earned $44 million from Callaway, Barclay's, KPMG, Exxon Mobil, Rolex, and others last year, so that extra endorsement tax may leave him wanting a mulligan. Though he'll get a credit against his U.S. tax for everything he pays abroad, there's no credit for the extra Medicare tax he'll pay, and he’ll still owe California too.  

All in all, Mickelson will pay about 61% tax on his British earnings, and that's after his considerable expenses, including travel, meals, agent fees on endorsement income, and 10% to his caddy.  

Obviously, keeping $800,000 or so for a couple of week's work isn't bad, especially when that "work" involves playing two of the most storied courses in all of golf. Still, it’s hard for anyone to swallow being taxed for over half their income!