Price of Victory: Phil Mickelson Hit With 61% Tax Bite on UK Winnings
Jul 22nd 2013 4:34PM
Updated Jul 22nd 2013 5:26PM
Mickelson, a 43 year-old Californian, won golf's oldest tournament by birdying four of the last six holes. His prize for this impressive feat: £945,000, or $1.43 million. The week before, "Lefty" -- as the normally right-handed Mickelson is called, for his left-handed swing -- won the Scottish Open, bringing his total winnings for two weeks of play in the UK to £1,445,000, or about $2,167,500.
But as K. Sean Packard, an expert on pro athletes' taxes, writes at Forbes, Mickelson won't be taking home nearly that much:
On top of that, Mickelson has to pay UK tax on a portion of his endorsement earnings in Scotland. Any bonuses he receives for winning these tournaments and moving up in the rankings will also be taxed at 45 percent. And Mickelson's endorsement income isn't chump change: As Packard notes, Roger Federer and Tiger Woods (whom Mickelson defeated at the Open) are the only athletes who earn more in this category.
The United Kingdom, which has authority to set Scotland's tax rate until 2016, graduates to a 40% tax rate when income hits £32,010 then 45% when it reaches £150,000. Mickelson will pay £636,069 ($954,000, or 44.02%) on his Scottish earnings.
And that doesn't exhaust Michelson's tax liabilities from his British triumph. He won't have to pay federal taxes on these winnings, thanks to a foreign tax credit, but the exemption doesn't apply to self-employment taxes, the Medicare surtax, or his home state of California's 13.3 percent take.
Perhaps thinking of his good-guy image, and those lucrative endorsement deals, Mickelson felt compelled to apologize for having vented his spleen: "Finances and taxes are a personal matter," he said in a statement, "and I should not have made my opinions on them public." One can only imagine how Mickelson feels now, contemplating a take-home rate of 30 percent (Packard's calculation, subtracting tax-deductible expenses from a post-tax net of $842,700).