Bob CollinsA group favoring tax reform is betting that you’re going to feel sorry for New England Patriots quarterback Tom Brady.
Americans for Tax Reform, the Grover Norquist-led group most famous for pushing politicians to sign no-tax pledges, is out with its analysis of the tax hit that Brady will take by winning the Super Bowl and the Chevy truck that goes with being named the game’s MVP.
According to CNBC, the NFL pays a player on a Super Bowl winning team a salary of $97,000 for the game. Brady doesn’t appear to have any Patriots team bonuses for the game, so this is likely the amount we’re dealing with.
Brady will face income tax at the top rate of 39.6 percent. In addition, since this is a wage, he will also owe the top Medicare tax of 3.8 percent, half of which will be picked up by the NFL. Put those together, and Brady will pay $42,000 in federal taxes on the game.
Brady is giving the truck away to Malcolm Butler, the player who intercepted a pass to seal the win.
That’s going to cost him.
He’s going to have to pay gift tax on this transaction. The tax code only allows you to give $14,000 tax free from any one person to any one person before assessing a donor level tax on the gift.
Assuming this will be Brady’s only gift to Butler this year, the transaction sets up a taxable gift for Brady of $20,000 (the $34,000 value of the truck minus the $14,000 gift tax exclusion). Assuming Brady has made at least $1 million of taxable gifts up to this point in his life (a safe bet), he will owe a 40 percent gift tax on this $20,000 taxable gift.
That’s a $5000 gift tax on top of a $13,500 income tax on the truck, for a combined federal tax hit of $18,500.
If you’re Tom Brady, there’s an obvious way around that. Don’t accept the truck and tell Chevy to give it directly to Butler. Then it becomes his problem.
Or just drive it for a few miles, thus reducing the tax hit, according to one accountant.
If Brady’s wife consents to a split gift, there will be a $28,000 exemption. Moreover, the $34,000 value for the truck is a retail value when purchased new from a dealer. Once the truck is in Brady’s hands, it is arguable that the value should be discounted to some extent. Perhaps Brady should drive the truck for a couple of weeks before gifting it. There is one case allowing a discount.
A good accountant can probably make a lot of those other taxes disappear, too.
