The Big Game, Taxes, ACA, and the Injured Reserve List
We’ve been thinking a lot about taxes and health care, and our anticipation about Sunday’s Big Game brought some things to mind. The Gridiron is many things to many people, and we generally take the risks in stride while we enjoy the excitement.
Not everyone – and certainly not every player – is so lucky. Running backs, for instance, are distinguished by two troubling facts: they are most likely of all NFL player groups to get hurt and they (along with safeties and kickers) are among those in the NFL with the lowest average salaries. And doubtless because of the physical stress and their time on the Injured Reserve (IR) list, running backs have an average tenure in the league of only 3.6 years as compared to the NFL-calculated average for 6.0 years for all players. Their game is the roughest of the rough, and that is in an already rough and risky environment.
But running backs get paid plenty to compensate them for the risk, right? Well, the average running back in the NFL may pull down $957,360, and he’ll easily pay a marginal rate of 39.6%. Often overlooked in financial discussions, but there all the same, most will still have the state tax man to pay. Over their playing tenure, then, they may net somewhere about $2 million after taxes. If they sock away about 10% of this money, then they’ll have roughly enough to retire at age 65 and live like a regular American just above the median household income. Depending on the number of years with the league and when they started in the NFL, they may also qualify for a pension – but the monthly pension for running backs with three seasons would be only about $1,410. Frugality is the post-season mantra for many former players.
So, what about health care? Because players have health coverage and typically very high income levels, they are highly unlikely to be able to deduct medical bills on their tax return. Because the ACA increased the threshold for the excess medical deduction in 2014 for persons under 65 to 10% of AGI, the average running back would be able to deduct medical costs only in excess of about $96,000 while they are playing!
But the need for coverage persists long after the last whistle. Former NFL players typically do not qualify for continued comprehensive health insurance coverage. Thus, they will – like all Americans – need to seek out alternatives. Under the Affordable Care Act (ACA), they can enroll in a qualified health plan in one of the new insurance marketplaces. If they don’t have job-based coverage and their income is below the limit (e.g., $94,200 for a household of four), then they can get a sizable tax credit to help cover the premium costs. This last point is critical: the federal government only looks at the current income: the government does not look at last year’s income or even current assets when determining eligibility for the tax credits.
So can former players score under the ACA? As with all matters related to taxes, it depends on their individual circumstances but certainly they are eligible to participate if the facts and circumstances match up. Which is why we invite former NFL players – and all of their fans – to get help with their taxes and the ACA at Jackson Hewitt.
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