Phil Mickelson faces £1m loss on Scottish winnings
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Newly crowned Open champion Phil Mickelson is facing a ludicrous £1m tax bill on his winnings from The Open and the Scottish Open, it has been revealed.
K. Sean Packard, an expert in tax planning for professional athletes, revealed in a a forbes.com article that the American faces the massive bill on his Scottish winnings, that will tally up to 61% of his £1.44m earnings.
Mickelson came under fire from some Americans earlier this year when it emerged he was considering a move to the tax free state of Florida, but he may now gain some sympathy.
The left-hander raked in just over £1.44m for his two weeks in Scotland, but he is expected to see less than £430,000 after tax, a loss of more than £1m.
The tax deductions include a 45% rate for earnings over £150,000, meaning Mickelson will pay around £635,000 on his Scottish earnings. The UK also taxes his endorsement income for the two weeks he was in Scotland and any bonuses he receives for winning these tournaments as well as a portion of the ranking bonuses he will receive at the end of the year, all at 45%.
It is a significant amount for Mickelson, who ranked number seven on Forbe’s June list of the world’s highest-paid athletes with earnings of $48.7m.
The UK is one of few countries, alongside the US, that collects taxes on endorsement income for non-resident athletes. The rule was briefly suspended as a condition for hosting the 2012 Olympics, but is now back in action.
The only good news for Mickelson is that he can take a foreign tax credit on his return stateside, so he is not double-taxed on this income.
The bad news is that the credit does not cover self-employment taxes (2.9%) or the America’s new Medicare surtax (0.9%). Additionally, California does not have a foreign tax credit so he will have to fork out 13.3% there as well. Although he receives federal deductions for his California tax and half of his self-employment tax, these deductions do not benefit him on this income because as they reduce his federal tax they also reduce his foreign tax credit.
So, without considering expenses, Mickelson will pay 61.12% taxes on his winnings. When expenses are considered (10% to caddy Jim “Bones” Mackay, airfare, hotel, meals, agent fees on endorsement income/bonuses), his take-home will fall closer to only 30%.
