Plíšková, Kyrgios, Kvitová Taxes from US Open

How much in taxes do athletes pay from the US Open?

Sep 6, 2022

The US Open continues into the second and final week of the tournament with eight players left on both the men and women’s side. The total purse for this last major of the year is USD $60.1 million, making it the biggest purse of all four majors (Australian Open, Wimbledon, French Open, US Open).

In following my favorite tennis players, I wanted to see how much they are earning by playing in the US Open tournament and how much they pay in US income taxes as a result.

Round-by-round breakdown of prize money

The total amount of participants in the main singles draw of the US Open is 256, which combines 128 women participants and 128 men participants. Each round awards a specific amount of money to the participant. For instance, by playing in the first round (round of 128), each participant is awarded $80,000. If the participant advances to the second round (round of 64), then the participant is awarded $121,000 on top of the previous round.

2022 US Open Main Draw, Singles

Round of 128 — $80,000
Round of 64 — $121,000
Round of 32 — $188,000
Round of 16 — $278,000
Quarterfinalist — $445,000
Semifinalist — $705,000
Runner-up — $1,300,000
Champion — $2,600,000

Every round a participant advances, the more prize money they earn. The total prize money for each men and women’s champion is $5.7 million.

Nonresident alien tax status

Of the 256 participants, most of them do not claim US citizenship, nor residency. Karolína Plíšková and Petra Kvitová represent Czech Republic, but their primary tax residence is Monte Carlo, Monaco. Nick Kyrgios represents Australia and his tax residence is the same.

According to US tax code, these three participants are considered nonresident aliens, and hence, subject to US income taxes. A normal tax-paying American citizen is subject to a progressive income tax system that looks like this:

Marginal Rates: For tax year 2022, the top tax rate remains 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly).
The other rates are:
35%, for incomes over $215,950 ($431,900 for married couples filing jointly);
32% for incomes over $170,050 ($340,100 for married couples filing jointly);
24% for incomes over $89,075 ($178,150 for married couples filing jointly);
22% for incomes over $41,775 ($83,550 for married couples filing jointly);
12% for incomes over $10,275 ($20,550 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).
https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022

Both Plíšková and Kyrgios advanced to the quarter finals and Kvitová made it to the Round of 16. This translates to $1.1 million to each Plíšková and Kyrgios, and $667,000 to Kvitová.

However, instead of the 37% highest income tax bracket from above, nonresident aliens who are athletes pay a lower tax. According to US tax code:

Operate like a business

A tax strategy that is compliant and permissible with US tax code is to operate like a business. Certainly, a participant may collect their total prize money and pay 30% in US income taxes and pay their appropriate income tax in their resident country. (Note: Monte Carlo does not tax income, but Australia does.)

Operating like a business means to deduct expenses (travel, meals, entertainment, etc.) from the income (prize money). Instead of paying 30% tax on $1.1 million, Plíšková and Kyrgios can deduct their expenses and instead pay the same percent tax on $900,000, for example.

The financially-savvy mind may say that instead of paying the max US income tax of $330,000, the participant paid $270,000 and saved $60,000 to take back to income-tax free Monte Carlo.

And this is the name of the game. While there are good and bad arguments for lowering or raising taxes, taxes are part of the financial game, and the more you can keep in your pocket, the more economic freedom you have.