By signing a six-year, $162 million contract with the Los Angeles Dodgers, former Atlanta Braves first baseman Freddie Freeman has landed one of the most lucrative free agent contracts in the post-lockout period.
He’s also potentially leaving millions of dollars on the “post tax” table.
No matter which team had signed Freeman, or which state he resides in over the next six years, he’ll pay the highest federal income tax rate (37%) on the portion of his income that, assuming he and his wife Chelsea Freeman file jointly, exceeds $647,850. He will also pay federal payroll taxes that are used to fund Medicare and Social Security, as well as “jock taxes,” which some jurisdictions levy on players from visiting teams.
Then it gets interesting.
By signing with the Dodgers, Freeman will pay California’s 13.3% tax on income that exceeds more than $1 million per year. Assuming Freeman, who was born and raised in California and who for years has resided there during the offseason, is a California resident, we estimate he’ll pay about $21.55 million to California.
If Freeman had signed the identical contract with the Braves, while maintaining a California residency, he would still pay the same projected amount—$21.55 million—in total state income taxes, including to California and Georgia. This is because his residency in California would subject his Braves earnings to California taxes.
But if Freeman had signed this same contract with the Braves while also residing in Georgia, where he has lived during the baseball season and which imposes a 5.75% tax on (jointly filed) income exceeding $10,000, he would have seen real savings. In that scenario, Freeman would have paid approximately $9.32 million in state income taxes, or about $12.23 million less than if he resided in California.
To be clear, these projections are estimates. There are a variety of factors and unknowns that will, or would, impact the actual dollar amounts. They include potential changes to federal, state and municipal tax laws, deductions for agent fees and other business expenses, and additional forms of income.
It’s also possible that Freeman could attempt to establish residency in a state without income taxes, such as Texas or Florida, to mitigate his tax burden. But establishing residency in a state is not a simple endeavor. It requires meeting several hurdles as determined by state law, including spending enough days in the state. With three young children, it’s possible that Freeman wishes to make California—a state to which he has been connected from birth—his “home,” even with the accompanying tax burden.