NFL Draft: No. 5 Pick Will Outearn No. 3 as State Tax Coffers Await
Becoming a top-five pick in an NFL Draft is a badge of honor. It means that a team’s front office is willing to stake its reputation in you over numerous other prospects.
It also means you’ll become a multimillionaire.
Each top-five pick on Thursday night, like all 32 first-round picks, will sign a four-year contract that contains a fifth-year team option. Salaries will be slotted according to the league’s rookie wage scale. The first overall pick (widely presumed to be Clemson quarterback Trevor Lawrence) will sign a four-year deal worth a guaranteed $36.79 million. The amount of a fifth-year option will depend on Lawrence’s performance and playing time relative to his on-field position. At the other end, the fifth overall pick will sign for $30.82 million.
Those pretax figures, however, don’t tell the complete story. The state tax law of the team that selects a player will have a sizable impact on how much he actually takes home.
Here are the key data and tax impacts. We assume the order of the top five remains as is (trades could change it) and that each drafted player resides in the state where he plays.
Along those lines, Lawrence is ideally situated. Not only he will sign the largest pretax value contract of the 259 players who will be picked this draft, but his NFL team will be the Jacksonville Jaguars. They play in Florida, one of nine U.S. states without a tax on wages (the other income tax-free states are Alaska, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire and Tennessee, while New Hampshire and Tennessee tax investment income).
Assuming Lawrence resides in Florida, we project he’ll net approximately $21.9 million after taxes. He’ll still be on the hook to pay the highest federal income tax rate (37%) on the portion of his income that exceeds $518,401 (or, if married filing jointly, income that exceeds $622,051). Lawrence will also pay projected athlete-targeted taxes (better known as “jock taxes”) as a visiting player to certain cities and states. And he’ll be on the hook for payroll taxes. But he’ll still avoid the kind of state income tax that most others drafted in the first round will face.
Speaking of other picks, BYU quarterback Zach Wilson is expected to be taken No. 2 overall by the New York Jets. His deal projects to be worth, pretax, $35.15 million, or about $1.64 million less than Lawrence’s deal. But after-tax tells a different story. Wilson’s contract will be subject to New Jersey’s 10.75% income tax rate on income of $1 million and up, as well as lower rates on the portion of his income under $1 million. We forecast Wilson will net approximately $17.51 million after tax, meaning the pretax difference of $1.64 million between Lawrence and Wilson’s contracts balloons to $4.39 million after tax.
Wilson, of course, might earn more in endorsement income in New York City (the country’s largest market) than Lawrence will in Jacksonville (the country’s 41st largest market). But Wilson will also pay a higher cost of living and much more in taxes.
The identities of players who will be picked 3, 4 and 5 are less certain at this stage, with experts generally expecting teams to draft from certain positions but disagreeing about who will be picked. It’s expected the San Francisco 49ers will draft a quarterback at No. 3, with Alabama’s Mac Jones, North Dakota State’s Trey Lance and Ohio State’s Justin Fields all garnering attention.
Whichever QB the 49ers take, he and his accountant will become familiar with California’s income tax laws. That player will pay a 13.3% tax on income that exceeds more than $1 million a year. His rookie contract projects to be worth $34.11 million before taxes. However, this draftee will pay $12.62 million in federal income taxes, $829,682 in payroll taxes and (assuming he resides in California) $4.54 million in state, local and jock taxes. He’ll end up with $16.12 million.
The 49ers rookie will become wealthy, to be sure. But he projects to take home less, after taxes, than players whom the Atlanta Falcons draft at No. 4 and the Cincinnati Bengals take with the fifth choice. The Falcons’ pick will gross $32.91 million but will net, after Georgia’s 5.5% income tax, $18.15 million—$2.02 million more than the player picked a spot earlier by the 49ers. That player will also net about $640,000 more (again, after tax) than future Jets QB Wilson. Meanwhile, the Bengals’ pick will gross $30.82 million but will net, after Ohio and Cincinnati’s combined 6.897% tax rate, $16.60 million, about $480,000 more than the player picked two spots earlier.
Kurt Badenhausen contributed reporting to this story.
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