Bryce Harper made a splash in baseball headlines on the Fourth of July when he was promoted within the Washington Nationals’ minor league system from the Single-A Hagerstown Suns straight to the Double-A Harrisburg Senators. In making this promotion, the management let Harper entirely bypass the “High-A” team, the Potomac Nationals. This is good news for Nationals fans, as it looks like Harper might make his major league debut sooner than expected.
While this certainly seems like a big move for the 17-year-old Harper, he ought to now take a step back and consider the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. implications of his step up. In moving from Maryland to Pennsylvania, he moves from a state with a top income tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. of 5.5% (and an average local income tax rate of 2.98%) to a state which boasts a home-run flat income tax of 3.07% (and an average local income tax rate of 1.25%).
Let’s run the numbers: Harper was the first overall draft pick in 2010 and he plays under a five-year, $9.9 million contract. Only half of Harper’s salary will be subject to Pennsylvania income taxes (the other half will be subject to the tax structure of every state that he visits on away games*), but even with those caveats, the decision to move to Pennsylvania will save him almost $39,000 per year in income taxes.
If Harper were to serve his entire five-year contract period playing for the Harrisburg Senators that amounts to about $194,000 less in Pennsylvania state income taxes.
The one thing that Harper should not do under any circumstances is move up to the majors. If he moves to DC to play for the Nats he will be subject to their top income tax bracket of 8.5%. That would mean over $40,000 in extra income taxes per year, or $201,000 over five years.
*Note: When running these calculations, it is important to remember that professional athletes and businesspeople are subject to “jock taxes,” which means that they must fill out an income tax form and pay taxes in every state where they render services. For a traveling baseball player, this means that roughly one-half of his income is subject to income taxes in other states. The calculations above represent how much money Harper stands to save on his “home game” income taxes only, and do not account for his tax burden to other states.
For more on income taxes, click here.