As reported by ESPN’s Adam Schefter and other media, the Dallas Cowboys and quarterback Dak Prescott have agreed to a four-year, $160 million contract. The deal reportedly contains a $66 million signing bonus—the highest in NFL history—has a guarantee of $126 million and will pay Prescott on average $42 million a year during the first three years of the deal.
Prescott, 27, is set to become the NFL’s second-highest paid quarterback after Kansas City Chiefs QB Patrick Mahomes, who earns $45 million a year.
A Louisiana native who played his college ball at Mississippi State, Prescott will also benefit by playing in Texas—one of nine states without an income tax on wages. Assuming that Prescott also resides in Texas, he projects to keep approximately $75.5 million of the $126 million. Our figure reflects Prescott paying 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). We also factor in projected payroll taxes and projected athlete-targeted taxes, aka jock taxes.
The financial benefit to Prescott by playing for the Cowboys becomes readily apparent if we compare his guaranteed money after taxes to that of Mahomes. While Mahomes will gross $15.4 million more in guaranteed wages—$141,428,000 to $126,000,000—he’ll only best Prescott by approximately $243,233 after taxes (assuming Mahomes resides in Kansas City). Missouri’s state income tax is 5.4% and Kansas City’s local income tax is 1%.
To be clear, there is no certainty in projecting tax figures, given that key factors could change over the next four years. For instance, federal tax law could change to increase (or decrease) the percentage paid by the nation’s highest income earners. Texas tax law, just like the tax and jock tax laws in other jurisdictions, could also change. And, though unlikely, Prescott could be traded to a team in a state with an income tax. Texas also features other taxes that Prescott will face. The state’s sales and use tax rate is 6.25% and can rise to as much as 8.25% in certain areas of the state.
Still, Prescott stands to make a fortune, and it will be enhanced by playing in Texas.