Running a personal finance site doesn’t allow me to write about current events all too often so allow me to hop on the LeBron to Miami train and throw a personal finance twist on it.
We’ve heard multiple reasons for LeBron’s final decision to head to Miami – playing with some of his best friends, living in South Beach, warm weather, being around Pat Riley, a team that has won recently won a championship – and an unusual one: no state income tax.
So what exactly does Florida not having state income tax do for LeBron?
The answer is surprisingly huge.
What Is State Income Tax?
It’s exactly as the name sounds – a tax on your income from the state you reside in. Currently, there are 7 states in the U.S. that have no income tax – including Florida, Alasaka, Texas, Wyoming, Nevada, South Dakota, and Washington. States differ on the amount of income tax they charge their residents, but it’s anywhere from the lowest – Illinois (3%) to Hawaii (a whopping 11%). States make up for the loss by usually raising the sales tax.
So how does this affect LeBron going to Miami?
Well, here’s the state income taxes of the other teams LeBron was considering playing for:
- If he went to the Bulls in Illinois he’d pay 3%
- If he went to the Knicks in New York he’d pay 7.85%
- And if he stayed in Ohio with the Cavaliers he’d pay 5.9%
By playing for Miami, LeBron’s contract – which will be near $100 million – will avoid any state income taxation in Florida. He will still have to pay a jock tax when he travels to other states to play. This tax started in California in the ’90s as a way for states to benefit from opposing player’s large contracts. LeBron would’ve paid $436,818 in jock taxes last year if he would have been in Miami.
There’s a lot of different taxes and situations to consider, but according to the Miami Herald, “when Cleveland city taxes also are factored in, LeBron would make $1.014 million more in Miami than in Cleveland over the first five years of a contract.” LeBron paid almost $900,000 in state income tax as a member of the Cavaliers and that number would head towards $1.5 million if he would’ve been in New York.
Take From the Rich
One final note. Many lambasted LeBron for agreeing to the 1-hour primetime special, titled “The Decision.” We’ve never seen anything like it, and of course, people came from far and wide to rip LeBron and his king-size ego to shreds. I’m not going to say LeBron was selfless in this venture, but his actions did do a lot of good for the Boys & Girls Club of America.
The 1-hour special with sponsorships from Bing, Nike, and Sprite will allow more than $2 million to be donated to the Boys & Girls Club.
Can you blame him for taking advantage of his prosperous position and doing some good?
I can’t.
Long live the King.
Photo: Craig Hatfield
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My husband and I immediately thought of the same thing — no income tax in Florida! Although I’m sure his accountants were sheltering his money the best they could from the beginning.
Thought the “prime-time special” was RIDICULOUS, but at least the Boys & Girls Clubs got something out of the circus.
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Tom Golisano, a self-made billionaire from my hometown (Rochester NY) recently moved to FL from NY in order to save on state taxes. According to him, his “tax savings just on income tax will be $13,800 per day. Per day. Now if it has this kind of effect on me imagine the effect on a lot of New Yorkers and what’s going to happen to our state as long as we keep allowing this to happen year after year after year.”
http://www.bizjournals.com/albany/stories/2009/05/11/daily53.html
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Austin Reply:
July 11th, 2010 at 10:31 pm
Wow, those are some amazing numbers. You don’t realize how much taxes matter to the top 5% of earners in the country, but I guess there’s a reason people go offshore.
Thanks for the link.
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professional bball players pay tax in every state they play in…
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Austin Reply:
July 10th, 2010 at 1:03 pm
Yeah, the jock tax. I mentioned that he would’ve paid around $430,000 last year as a member of the Heat.
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Really interesting post Austin! The income tax issue hadn’t occurred to me. Small percentages, but when you’re talking about a salary that large, it adds up to a lot!
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