To make up for the loss with the deferrals – because of inflation and lost interest-earning opportunity, future money is worth less than present – Scherzer will receive $50 million in the form of a signing bonus spread over multiple years, the source said. The benefit to structuring the contract as such is that because his permanent residence is outside the District, Scherzer will not be subject to a state income tax on money earned in Washington, D.C.
The Home Rule Act, established in 1973, exempts nonresidents from paying state income taxes at the capital’s 8.5 percent rate. In practice, it means Scherzer would save more than $4.25 million of the $50 million bonus he’ll receive in Washington, D.C. – though just how much of that would be subject to tax elsewhere depends on the state in which he earns the money and where he resides. Additionally, none of the $105 million in deferred money would be subject to state taxes, potentially saving Scherzer another $8.92 million. All told, the lack of state income tax in D.C., when compared to playing in tax-heavy states, could save Scherzer eight figures. One source said the tax advantages could end up at more than $20 million, offsetting much of the money lost via deferrals.
