Large Chunk of Taxes Taken from Mickelson's UK Winnings
by Terri Eyden on
By Jason Bramwell
Phil Mickelson recently had about as perfect a two weeks in the United Kingdom as any professional golfer could hope for.
Mickelson, who is sponsored by Big Four firm KPMG LLP , won the Aberdeen Asset Management Scottish Open in a sudden-death playoff on July 14. One week later, he won the prestigious British Open for the first time, the fifth major championship victory of his career.
As a result of his two consecutive victories in the United Kingdom, Mickelson earned £1,445,000, or more than $2.1 million, not a bad two weeks of work for the golfer known as "Lefty." Unfortunately for him, 61 percent of his winnings will go to taxes, according to a July 22 Forbes magazine report.
The United Kingdom, which has authority to set Scotland's tax rate until 2016, graduates to a 40 percent tax rate when income hits £32,010, then 45 percent when it reaches £150,000. Mickelson will pay £636,069, or $954,000 (44.02 percent), on his Scottish earnings.
Also, a portion of his endorsement income for the two weeks he was in Scotland will be taxed by the United Kingdom. Additionally, the United Kingdom will tax any bonuses he receives for winning the Scottish and British opens, as well as a portion of the ranking bonuses he will receive at the end of the year – all at 45 percent.
According to the report, the United Kingdom collects taxes on endorsement income for nonresident athletes who compete in Britain.
Mickelson can take a foreign tax credit on his US return so he is not double taxed at the federal level on this income; however, his home state of California does not have a foreign tax credit, so he will have to fork over an additional 13.3 percent there.
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, while they reduce his federal tax, they also reduce his foreign tax credit, according to Forbes.
When all is said and done, Mickelson will pay 61.12 percent taxes on his winnings, bringing his net take-home earnings to approximately $842,700. Considering he gives his longtime caddy Jim "Bones" Mackay 10 percent of his winnings and pays for airfare, hotels, meals, and agent fees on endorsement income/bonuses – all tax deductible in the United States and in the United Kingdom – Mickelson will only take home about 30 percent of his UK winnings.
Mickelson made headlines earlier this year for threatening to leave California because of increases in state income taxes , something for which he later apologized.