Wembanyama Could Save Millions in Taxes by Moving to Texas
Victor Wembanyama is set to be drafted first overall by the San Antonio Spurs in the 2023 NBA Draft on June 22.
How quickly he moves to Texas could make a big difference on the tax front.
More from Sportico.com
Spurs Minority Owner Closes Deal Hours Before Wembanyama Win
Celtics' Tatum, Brown Face Supertax With Potential Supermax Deals
As the No. 1 pick, the NBA’s rookie wage scale dictates that Wembanyama, 19, will sign a two-year contract with a team option for the third and fourth years that projects to be worth about $54.36 million, with $11.98 million paid in 2023-24.
Wembanyama, who is regarded as basketball’s most promising prospect since LeBron James entered the NBA in 2003, will earn many millions more through endorsements.
While the specific dollar amount Wembanyama will earn is unknown, a reasonable and recent comparison is Zion Williamson’s experience as a rookie in 2019-20. Williamson was the first overall pick and, like Wembanyama, entered the NBA with great hype—and marketability. Williamson reportedly earned about $20 million in endorsements.
Like other pro athletes, Wembanyama will pay a sizable portion of his earnings in taxes, but unlike most other pro athletes, his tax burden is affected by his status as a French citizen working in the U.S. Wembanyama was born and raised in France, and the 7-foot-5 phenom has played for the French national team as well as a French pro team, the Metropolitans 92.
French residents are subject to their country’s tax scheme, which features a progressive model that charges high earners higher rates than lower earners. Residents of the country pay a 45% tax rate on earnings of €168,994 (roughly $181,000), the country’s highest bracket. They also face taxes for real estate income and capital gains on sales of shares. Wembanyama, as a French resident, would receive a tax credit for the taxes he paid in the U.S, but he could still face a sizable tax bill in France.
If Wembanyama is no longer considered a French resident, his tax outlook would improve since he would no longer owe taxes to France. Tax residency in France depends on several factors, including state of personal home, economic interest in the country and time spent in France. An accountant in France tells Sportico Wembanyama would, at a minimum, need to move out of France and make another country his home for him to no longer be considered a French resident.
Wembanyama will be able to enter, reside, work and travel in the U.S. once he obtains a visa. There are a few types of nonimmigrant work visas he may qualify for as an NBA player and professional athlete with extraordinary ability. Wembanyama can also seek a Green Card, which would signify he is a permanent resident of the U.S. If he eventually wishes to become a naturalized U.S. citizen, he can apply for citizenship after several years of residence and meeting other requirements.
No matter his immigration status., Wembanyama’s earnings will be of interest to the I.R.S and state department of revenues.
Wembanyama will need to pay the highest federal income tax rate (37%) on the portion of his income that exceeds $578,126. (Wembanyama is single, but if he ties the knot in 2023, the threshold would climb to $693,750.) He also faces payroll taxes, including the Social Security tax, Medicare tax, the Medicare surcharge and, as a visiting player to certain cities and states, projected athlete-targeted taxes (more colloquially known as “jock taxes”).
If Wembanyama left France, he would likely move to Texas, which is significant because Wembanyama would pay zero state taxes, since Texas doesn’t have an income tax. This will save him a considerable amount of money. Along those lines, Wembanyama will want to ensure that the deals he signed are governed by U.S. law, preferably Texas law.
If the Charlotte Hornets, who pick second, or the Portland Trail Blazers, had won the lottery, Wembanyama would owe approximately $2.1 million to the North Carolina Department of Revenue or approximately $4.4 million to the Oregon Department of Revenue on his NBA contract and projected endorsement earnings of $20 million.
Although not in his rookie or second seasons, Wembanyama will eventually be deemed a “U.S. tax resident” under tax law’s “substantial presence tax.” At that point, his worldwide income will be subject to U.S. taxes. The test calls for a person spending 31 days in the U.S. in the current year and 183 days over three years.
To be clear, these tax calculations are only estimations based on imperfect knowledge. Wembanyama will have expenses and deductions that impact what he owes. His income streams might also prove diverse, particularly if he is entrepreneurial. Wembanyama might also want to remain closely tied to France for family and patriotic reasons.
But what is clear is that if Wembanyama wishes to limit his tax exposure, he’ll move to Texas as soon as possible.
Kurt Badenhausen contributed to this report.
