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Will Likely Increase in Marginal Tax Rates Prompt Rush to Signing Bonuses?

By Rick Karcher, Michael McCann, Geoffrey Rapp, Greg Skidmore, and Howard Wasserman

Interesting point raised in an Associated Press article:

Some baseball agents already are thinking about trying to beat a possible tax increase for their well-paid clients under an Obama administration. President-elect Barack Obama has proposed increasing the top federal income tax rate from 35 percent to 39.6 percent, where it was under president Bill Clinton. If signing bonuses are paid before Jan. 1, they likely would be taxed at the current rate and would not be subject to any increase. "

Obama's proposal would increase federal income tax on families earning more than $250,000 annually, money that would help finance a decrease for workers and families earning less than $200,000.

[F]or a big-money free agent earning $10 million in 2009, Obama's plan could increase his federal tax by more than $400,000.

Agent Scott Boras, negotiating eight- and possibly nine-figure deals for free agents Manny Ramirez and Mark Teixeira, already has thought about the possibility of asking for larger signing bonuses payable this year in some of his contracts.

The prospective increase in marginal tax rates has already fueled speculation that players who are set to become free agents at the end of next season may be motivated to rip up their contract for next year and get an extension (with signing bonus) done now (see Sons of Sam Horn commentary on Jason Bay of the Red Sox)

Full post as published by Sports Law Blog on November 05, 2008 (boomark / email).