RR payouts to WVU

Submitted by hokiewolf on
I was cruising Wemustignitethiscouch to see what my lunatic neighbors are doing, and they're all excited over RR's first payout to WVU coming due soon. I have assumed that a rich MI alum or two might pick up at least part of the tab for him, but that was before OMG3-9. Anyone hear differently?
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M Squared

September 29th, 2009 at 2:35 PM ^

University picked up 2.5 million, I believe. Rich would owe 1.6 million in taxes for that help, and the U paid that as well. So, UM paid 4.1 million for the settlement - 2.5 to WVU and 1.6 to IRS.

Joined: 07/02/2009

MGoPoints: 1908

M Squared

September 29th, 2009 at 3:50 PM ^

It's been awhile since I studied tax law, and I was never good at it anyway. Here's my best (read: bad) recollection of it. Individuals are taxed on almost all accretions of wealth. Rich Rod owed $4 million to WVU. Michigan gave him $2.5 m. Let's say tax is 40%. Rich Rod is taxed on this $2.5 m as income because it's an accretion of wealth. That's $1 m in taxes he owes to the IRS (nothing to do w/ WVU). If Rich Rod pays this $1 m in tax, that's the end of the story. Instead, he did not pay, and Michigan chose to pay the tax as well. This additional payment is also considered income and taxed by the IRS. So, 40% on $1 m is $400 k. If Rich Rod pays this, that's the end of the story. Instead, Michigan pays, and so on. If I remember right, this is called "grossing up," not sure if that's the right term.

Joined: 07/02/2009

MGoPoints: 1908

bigmc6000

September 29th, 2009 at 4:21 PM ^

Now I'm with ya. If we do a super awesome job at work we'll get lucky and they might give us a "grossed up" $100 "bonus." By that they had to gross it up to $130 or whatever and you still have to pay taxes on that $130 even tho you only saw $100 of it. I'm with ya - thanks for the clarification!

Joined: 01/12/2009

MGoPoints: 1957

chriscamzz

September 29th, 2009 at 4:36 PM ^

In your scenario (a bit simplified, but still generally true), you get $100 in your pocket, and your employer withheld the other $30 for taxes. Your total taxable income was $130 because your employer chipped in to cover the taxes on your $100. Your effective bonus is now $130 and not $100 Contrast that with your employer giving you a $100 bonus, then taking taxes out of it, so your take home is ~$75.

Joined: 09/15/2009

MGoPoints: 642

OldManUfer

September 29th, 2009 at 5:03 PM ^

Think about it this way: If RR owed WVU one million and is taxed at 33.3%, the university can pay him $1.5 million. A third of that ($500,000) goes to the IRS and $1,000,000 to WVU. If the Athletic Department gives WVU $1,000,000 and the IRS $500,000, RR does not owe additional taxes on that $500,000. His total tax obligation has been fulfilled.

Joined: 07/16/2008

MGoPoints: 418

marlon

September 30th, 2009 at 8:50 AM ^

EDIT: The first example is correct; the second is incorrect. In the first example, RR's net income after taxes would be $1M. In the second example, RR's net income after taxes would be $1.5M. See M Squared's post, above, for a more thorough explanation of "grossing up."

Joined: 01/21/2009

MGoPoints: 590

OldManUfer

October 1st, 2009 at 8:20 AM ^

I won't belabor this point after this, I'm sure people are getting sick of the discussion. If you really want to keep arguing it, start an "OT: Tax Discussion" topic. The second case is equivalent to the first. The "grossing up" example doesn't apply because the $500,000 paid to the IRS is more than the tax liability on that million paid to WVU. If it helps you to think about them separately, you can still achieve the same result. At 33.3%, the tax on the million is $333,333.33 and the tax on $500,000 is $166,666.66. The sum of those two taxes is $500,000, which is the amount paid to the IRS.

Joined: 07/16/2008

MGoPoints: 418

Thomer

September 29th, 2009 at 2:27 PM ^

Rich alums can't just go giving money away. There's a difference between donating it to the University and giving it to Rich Rod to pay off his lawsuit. If there's one thing rich alums hate it's taxes. If they give Rich Rod more than $13,000 in 2009 they have to pony up to the IRS, lest they dig into their lifetime exclusion limit that they would probably reserve for their family.

Joined: 06/30/2008

MGoPoints: 5

hokiewolf

September 29th, 2009 at 2:32 PM ^

The University paid $2.5M, I believe, so he owes $1.5M broken up into three payments. I know about the tax hit. If 50 of them gave ten grand, though, that would cover one payment. It's probably wishful thinking on my part. I blame the cold meds. I just like to piss WVU fans off, because they lose the ability to speak coherently if they think that RR might not feel a lot of pain. Maybe I'll start a rumor anyhow.

Joined: 11/11/2008

MGoPoints: -4210

chriscamzz

September 29th, 2009 at 3:45 PM ^

If it's what I'm familiar with, the taxable income/reimbursement loop is recursive. I was reimbursed by an employer in a similar fashion for several years, so I have some familiarity with how it works. My assumption here is that it is a 35% income tax rate. The sum totals seem to be in the general ballpark....

 Taxable Income

 Taxes owed

Tax Rate

Original amount owed to WVU (Paid by UM)

 $  2,500,000.00

 $      875,000.00

0.35

Reimbursement by UM for taxes from line above

 $      875,000.00

 $      306,250.00

0.35

Reimbursement by UM for taxes from line above

 $      306,250.00

 $      107,187.50

0.35

Reimbursement by UM for taxes from line above

 $      107,187.50

 $        37,515.63

0.35

Reimbursement by UM for taxes from line above

 $        37,515.63

 $        13,130.47

0.35

Reimbursement by UM for taxes from line above

 $        13,130.47

 $          4,595.66

0.35

Reimbursement by UM for taxes from line above

 $          4,595.66

 $          1,608.48

0.35

Reimbursement by UM for taxes from line above

 $          1,608.48

 $              562.97

0.35

Reimbursement by UM for taxes from line above

 $              562.97

 $              197.04

0.35

Reimbursement by UM for taxes from line above

 $              197.04

 $                68.96

0.35

Reimbursement by UM for taxes from line above

 $                68.96

 $                24.14

0.35

Reimbursement by UM for taxes from line above

 $                24.14

 $                   8.45

0.35

Reimbursement by UM for taxes from line above

 $                   8.45

 $                   2.96

0.35

Reimbursement by UM for taxes from line above

 $                   2.96

 $                   1.03

0.35

Reimbursement by UM for taxes from line above

 $                   1.03

 $                   0.36

0.35

Reimbursement by UM for taxes from line above

 $                   0.36

 $                   0.13

0.35

Reimbursement by UM for taxes from line above

 $                   0.13

 $                   0.04

0.35

Reimbursement by UM for taxes from line above

 $                   0.04

 $                   0.02

0.35

Reimbursement by UM for taxes from line above

 $                   0.02

 $                   0.01

0.35

0.35

Total reimbursement from UM

 $  3,846,153.84

 $  1,346,153.84

Joined: 09/15/2009

MGoPoints: 642