The United States' Internal Revenue Service (IRS) is set to tax part of Spain's $50 million World Cup prize money, dealing a blow to the winning team. The reason for this is simple: the FIFA World Cup was co-hosted by the United States, making any income earned during the tournament in America subject to US taxation.
Experts say it doesn't matter which country wins the World Cup - the IRS will still collect taxes on income earned in the US. "The World Cup's tax complexity was 8 out of 10 because of the many international tax rules involved," said Rob Fagan, senior manager at KPMG's Washington National Tax practice.
Besides prize money, players can earn extra cash through sponsorships, endorsement deals, and paid appearances. All of this extra income can create tax obligations, depending on where the money was earned. The World Cup is one of the most complicated sporting events when it comes to taxes.
Professional athletes already deal with complicated taxes because they earn money in different countries with different tax laws. Players may receive bonuses for meeting performance targets, making their income harder to calculate than a normal salary. Some players are treated as employees, while others may be considered independent contractors for tax purposes, adding more complexity.
The World Cup creates even more challenges because international tax treaties can affect how much tax a player has to pay. These treaties are designed to stop people from paying tax twice on the same income. However, those benefits may disappear if the amount of money earned crosses certain limits.
Spain will not get to keep all of that prize money because the IRS is expected to collect taxes from income earned in the US. The IRS will also collect taxes from coaches, team staff, and referees who earned money during the tournament in the US.
The World Cup offered a total prize pool of $655 million, which was shared among the 48 participating national teams based on how they performed. Every team that played in the tournament is expected to leave with some kind of tax bill, not just memories of the event.
Tax experts say many people wrongly believe that if the federation pays no tax, the players also do not have to pay taxes. Tax rules can even be different for players on the same team because each player may have a different country of residence, club or tax situation.
The IRS worked with tax authorities in Canada and Mexico to decide how income would be divided among the three host countries. The three countries agreed on rules to identify which part of the income was earned in the US, Canada, and Mexico.
Before the tournament, the IRS released a special "tax playbook" for foreign players, coaches, staff, media workers, and businesses coming to the World Cup. The guide explained the tax forms and rules participants should follow while working in the US.
The IRS ended the guide with one main piece of advice - hire a tax professional because the US tax system is very complicated for international visitors. Federal taxes are only one part of the story because some US states also collect income taxes.
World Cup matches were played across nine US states and 11 cities. Texas, Florida, and Washington do not charge state income tax, but several other host states do. This brings in what tax experts call the "jock tax." A jock tax means athletes may have to pay income tax in the state where they earned the money, even if they live somewhere else.
Some taxpayers may later receive tax credits depending on agreements between different states. Famous athletes are closely watched by state tax authorities because they earn large amounts of money. The World Cup final was played in New Jersey, which charges state income tax. Players from both Spain and Argentina will definitely have to pay New Jersey state taxes on income earned from the final.
Written by: Spleenis and Buttfed | The Citizen Edition
“Huh huh, yeah! Whatevs.”