California's new tax laws will take a bite out of Phil Mickelson's Phoenix Open winnings

Phil Mickelson
Hunter Martin / Getty Images
Phil Mickelson won $1,116,000 at the Phoenix Open ... but not all of it will land in his bank account.

Phil Mickelson earned $1,116,000 for his four-stroke victory over Brandt Snedeker at the Waste Management Phoenix Open at TPC Scottsdale on Sunday. Too bad Mickelson had to go back home to California, which voted last November to increase its top tax rate from 10.3 to 13.3 percent. For the privilege of living there as opposed to one of the seven states with no state income tax, or Arizona, the San Diego native will see his check reduced by nearly an extra $100,000.

"If you look at the professional golfers who grew up in California," says Philip Hatch, a CPA from Rancho Santa Fe, Calif., where Mickelson lives, "very few of them still live here, Tiger Woods being the prime example. I don't want to say it's foolish, but if I was one of them, I would strongly consider moving."

The financial life of a multi-millionaire like Mickelson is hardly a matter of national importance, but he raised the issue when he complained about California's top-rate tax increase at the Humana Challenge last month. He said the increase, coming as it did just before a federal increase for the wealthiest individuals, might inspire him to move. The comments didn't play well in light of the weak economy and Mickelson's reported annual income of $60 million, and he apologized.

"I'm going to handle the situation the best we can privately," he said, "and then announce it publicly, what we're going to do, when we have a better idea."

After paying taxes and his caddie (see sidebar below) Mickelson will keep an estimated 37 percent of the $1,116,000 he won on Sunday -- about $410,000. That's not bad for a week's work, but if he doesn't like it, Mickelson has two options. The first option is probably not possible, since it involves proving residency elsewhere and paying cash for everything, so as not to leave a paper trail in the Golden State.

The second option is to move. But where? Phil and wife Amy and their three kids could embrace Florida, as Tiger Woods did in 1996. With no state income tax, it's a safe harbor for athletes like Shaquille O'Neal; Ken Griffey, Jr.; and numerous Tour pros. Baseball player Torii Hunter recently left California for Texas, which also has no state income tax. Nick Watney lives in Nevada -- also a tax haven.

Mickelson has been a vocal supporter of California. He appeared in a 2009 television spot with, among others, then-governor Arnold Schwarzenegger, to promote living in the state. "I love it here," Mickelson said at the Farmers Insurance Open, two weeks ago. "I grew up in San Diego. And even though I went to college in Arizona, I dreamed of moving back here because it's beautiful. My family's here. Amy's family is here. Our kids' grandparents are here."

For those reasons, it's a decent bet Mickelson won't move after all, but if he does, his most likely destination is not to Florida, Texas or Nevada, but Arizona, where he went to college and lived after turning pro. It's where he not only picked up his most recent win, in Scottsdale, but also his first, in Tucson, as an amateur.

"I'm not sure what we are going to do at the end of the year," Mickelson said at TPC Scottsdale, where he led from start to finish, "but this is a town that, having lived here for 12 years, I really enjoy and miss the people and the friendships that we have here. It's home to the first corporate deal or business deal that I ever did with Grayhawk Golf Club, which we still currently have. It's my first golf course design up at Whisper Rock. I have all these ties. Plus my brother is now the golf coach at ASU. There are a lot of great things about this community that lure me, and certainly I come here three, four times a year to go to an ASU game, golf, see my friends, what have you. I don't know what's in the cards for that."

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Phil will only keep about 37 percent of his Sunday winnings. Here's our rough estimate of where most of his $1,116,000 goes.

 

40 percent to the Federal Government: $446,400
New changes to federal tax law affect Mickelson not only with a new top tax rate but also with a possible reduction in federal itemized deductions. If the fed takes roughly 40 percent, that would amount to about $446,400.

13.3 percent to California: $93,000
The state will give Mickelson a credit for taxes paid to other jurisdictions, which means it will bill him the full 13.3 percent ($148,500) less Arizona's share ($55,800, see below), which would come out to roughly $93,000.

10 percent to Jim Mackay: $111,600
Mickelson's longtime caddie is almost certainly on some sort of yearly salary, but if Mickelson were to pay his bag man the standard 10 percent of a PGA Tour win, his veteran looper would net slightly more than six figures.

5 percent to Arizona: $55,800
As with any professional athlete, Mickelson first pays "source income tax" to the state in which the competition was held. Arizona's top-tier state income tax sets Mickelson back roughly 5 percent.

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