Do pro golfers have to pay state income tax on the prize money they earn?

Do pro golfers have to pay state income tax on the prize money they earn?

The 2018 Masters prize money payout shows the winner's share of the $11 million purse comes in at an astounding $1.98 million. We know Uncle Sam and the Internal Revenue Service will want their share of the money earned, but each of the 50 states also want to claim their piece of prize money through state income taxes -- even if a pro golfer doesn't live there and doesn't earn the majority of their income in those states.

For example, the Masters takes place in Georgia which has both a state income tax and assesses that tax on pro golfers competing in the Masters Tournament. Their top bracket is 6 percent for earners making at least $10,000 in the state in a given year, meaning each player has to pay a 6 percent tax on their earnings as Augusta National pays $10,000 even to players missing the 36-hole cut.

The 2018 Masters winner will get $1,980,000 in prize money, and they'll have to pay $118,800 in state taxes to Georgia. However, they'll have an opportunity to write of the expenses of doing their job in Georgia, which would include transportation, accommodations and the like.

Golfers have to pay state income taxes on prize money earned in any state with a state income tax rate. The only states without a state income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. The PGA Tour and its major tours under its umbrella do not have tournaments in Alaska, South Dakota or Wyoming.

This is why so many pro golfers choose to live in states with no state income tax, like Florida or Texas. Residents of New Hampshire and Tennessee do not pay state income tax but do have to pay on dividends and income from investments.

At the federal level, prize money earned is treated like taxable income, meaning pro golfers are getting taxed at the normal income rates for their earnings, not against different rates like for capital gains. This is why many players have set up limited liability corporations for their earnings to they can benefit from the passthrough deductions of 20 percent for net income earned, for money paid through these limited liability partnerships, sole proprietorships, and other pass-through businesses.

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