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Delay in performance-based pay raises tax concerns

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Rumors have been circulating for days that, in order to push the 2013 salary cap to $123 million per team, the NFLPA agreed to delay by two years the issuance of checks for performance-based pay earned in 2013.

NFLPA spokesman George Atallah tells Liz Mullen of SportsBusiness Daily that, indeed, payment for 2013 performance-based pay will come in March 2016 and not in March 2014.

The delayed payment was aimed at helping to nudge this year’s salary cap from $120.6 million to $123 million.  “In the early years of this [labor] deal, where revenues were not growing at the rate we expect them to grow when the television money comes in, we engaged in a process to smooth the salary cap,” Atallah said.

Most of this year’s increase comes from an increase in revenues, Atallah added.

But there’s a potential problem with the deferral of the performance-based pay.  Multiple teams are concerned, we’re told, that players will face significant tax bills in 2014 for money earned but not actually received.  This possibility applies most dramatically to young, minimum-salary players who end up becoming starters and earning large amounts of performance-based pay.

There’s a chance that the tax liability will attach only when the money is actually paid by the teams.  For now, teams are indeed concerned that the two-year deferral could create tax burdens that players won’t be able to afford.

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19 Responses to “Delay in performance-based pay raises tax concerns”
  1. dfrooney says: Mar 7, 2013 4:30 PM

    Many companies pay on a one cycle delay. When you get paid on 1/15/13, it’s for the work period of 12/15/12 to 12/31/12. In that situation you actually earned that 1/15/13 paycheck in 2012…but you won’t be taxed for it until 2013 since that the year you actually got the paycheck.

  2. brazy44 says: Mar 7, 2013 4:30 PM

    you get taxed on moneies received, not earned, otherwise your W2 would inlcude bonuses you earned but have not been paid, or the last week of the year that you worked, but are not paid for till a week later.

  3. Reggie's Bush says: Mar 7, 2013 4:31 PM

    Bounty! /sarcasm

  4. leftcoastnative says: Mar 7, 2013 4:32 PM

    Obviously, Dee Smith and those who approved the CBA did not do their homework or fully understand what they were approving. Hard for me, if I were a player, to earn incentives in the 2013 season, but defer payment until March 2016, but yet get hit with a tax bill for the earnings due in April 2014. Furthermore, the player has deferred compensation, but with no interest income attached, the value of the money 2 years and 4 months later is a far cry from what it was when actually earned. NOT good business sense.

  5. britishraven says: Mar 7, 2013 4:36 PM

    And the NFLPA didn’t think this would be a problem when they agreed to this?!?!?!?!?!

    If I was a player I’d be wanting to know just what my Union fees are going towards. Aren’t lawyers employed to know this???

  6. bigbrad184 says: Mar 7, 2013 4:37 PM

    Individuals are cash basis taxpayers. They will pay the tax when the cash is collected. There should be no related party issues that would cause them to take the money into taxable income before the receipt of the cash.

  7. ken0west says: Mar 7, 2013 4:41 PM

    You pay taxes when the money is paid not earned. Anyone who gets deferred compensation for their employer knows that.

  8. mrpowers88 says: Mar 7, 2013 4:55 PM

    So the increase in revenue was enough to raise the salary cap, but not enough to actually pay all the money involved in the salary cap? That makes sense…

    I’m sure the union won’t count those performance-based monies towards the announcement of the 2015 or 2016 salary caps

  9. thereisalwaysnextyear says: Mar 7, 2013 5:05 PM

    Come on man. You can “earn” all you want in a given year, but if you aren’t “paid” until the next year the taxes are due for the following year not in the year “earned”. I can’t believe there is concern over this by anyone who pays federal income taxes. Woops I guess that means about 50% of people may not get this. But certainly the agents and teams should. This is 101.

  10. uwsptke says: Mar 7, 2013 5:15 PM

    People don’t use accrual-basis accounting on their personal income taxes. This concern is without merit.

    This is why Vincent Jackson restructured his contract to put real cash in his pocket before the expected tax hike for 2013.

  11. therealjr says: Mar 7, 2013 5:31 PM

    So much for this story being relevant.

  12. briang123 says: Mar 7, 2013 5:32 PM

    You don’t get taxed on money until it is actually paid. Unless the IRS and/or federal and state governments decide to implement the concept of “imputed income.” These days, with the governments trolling for cash, you can’t rule out the possibility. Many politicians need to get re-elected in 2014. Tax revenue in 2016 doesn’t help them.

  13. briang123 says: Mar 7, 2013 5:32 PM

    I’ll bet Russell Wilson’s wife is real happy to hear this.

  14. robert831 says: Mar 7, 2013 5:49 PM

    I would be pissed about this if I was a low round pick and became a starter. Hold off on buying that house you want for your family for two more years…

  15. hlmatty1 says: Mar 7, 2013 8:20 PM

    Another legal comment, another totally bogus statement. That you should make the claim that people would have to pay taxes as an employee for something they did not receive until years later is so ridiculous and embarrassing that if I were the law school you went to, I would erase any record of your attendance so that nobody knew you were a graduate.

  16. stevecmh says: Mar 7, 2013 8:40 PM

    NFL teams may have a much bigger issue than the players. I believe the IRS usually requires performance bonus payments to employees to be paid in the current year or year after in order for the business to claim the payments as a business expense. Deducting performance bonuses paid after this period will likely require special justification unless there is a collective bargaining exception in the IRS code.

  17. stevecmh says: Mar 7, 2013 8:51 PM

    IRS Code section 409A may apply here. There are certain procedures to be followed to prevent deferred compensation from being immediately taxable to the individual employee. The NFLPA should be aware of this issue.

  18. rcali says: Mar 7, 2013 10:18 PM

    Now that’s some Change folks! Think NFL players want that vote back?

  19. mazblast says: Mar 7, 2013 10:49 PM

    Individuals are on a cash basis 99.99% of the time–they pay taxes on the gross pay they RECEIVE.

    Corporations, particularly large ones such as every NFL team and the league itself, are usually on an accrual basis, meaning income and expenses are booked as they are EARNED or INCURRED, rather than when they are paid.

    What this delay means is that the players won’t be taxed until they are paid the money, but the teams will deduct the money now. Later, of course, the teams will have to pay the money, but won’t be able to deduct it, having already done so (and having already deducted it, will have no incentive to pay it). I have every confidence that the league and teams will come up with some new dodge to get around that when the time comes.

    The teams can also use this expensed-but-not-paid feature to claim they’re “losing money” every time the CBA is up for negotiation, particularly when negotiating with a union that doesn’t seem to sharp when it comes to “cash flow” and other accounting terms.

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