“Taken together – the tax on Olympic athletes and the tax on income earned abroad – it can be said the U.S. has officially ‘earned the Gold’ for having one of the most backwards and illogical tax codes in the world,” Americans for Tax Reform said in a statement.
“Our tax code is a complicated and burdensome mess that too often punishes success, and the tax imposed on Olympic medal winners is a classic example of this madness,” stated Senator Marco Rubio when he introduced the Olympic Tax Elimination Act in 2012.
For many of these Winter Olympic athletes from the United States, years of hard work can lead to just a few minutes of fame in events that many do not often watch. Those who do get the few seconds of fame for winning a medal also win a fat tax bill from Uncle Sam.
Uncle Sam will tax winning athletes on the medals they win along with the cash bonuses the U.S. Olympic Committee (USOC) gives out to its medal placers. Uncle Sam taxes these winnings since he considers it income earned abroad, thus it is subject to IRS taxation.
Dollar value for the 2014 Sochi Olympic medals–
- Gold medal: $566
- Silver medal: $325
- Bronze: $3
To make matters worse for winning American athletes, the IRS will also tax any other precious metals that are in the athletes’ medals.
The USOC will also award their own champions $25,000 for a gold medal; $15,000 for silver; and $10,000 for bringing home a bronze. So, athletes in the top income tax bracket, 39.6 percent, will have to pony up as much as $9900 of a gold medal payout, Reuters reports. Altogether, the total federal tax liability for a gold medal winner will be a little over $10,000.
During the 2012 Olympics in London, winning U.S. athletes paid $236 in taxes on just a gold medal worth $650. Athletes also paid taxes on the same USOC prize monies they won two years ago.
According to Americans for Tax Reform, here is an outline of what U.S. athletes in London 2012 gave to the IRS in taxes on their winnings.
To rub it in further, not only does Uncle Sam tax U.S. athletes for their medals and winnings, but these athletes also have to watch their competitors go home and not face any such taxation on their winnings. The U.S. is virtually the only developed nation that taxes “worldwide” income: taxpayers’ earnings overseas.
On the other hand, countries such as Malaysia and Indonesia wholesomely reward their winning athletes. Singapore offers an $800,000 reward for any of its gold-winning athletes, and Malaysian 1st place finishers receive a $600,000 gold bar. Unfortunately, neither country has any athletes partaking in this Winter Olympics in Sochi.
Azerbaijan has the highest total rewards for its competitors of any country represented this Olympics; their gold medal winners could walk away $510,000 richer. Silver medalists from the country could receive $255,000, and bronze medalists could receive $130,000. Best of luck to the four athletes that represent the country!
Aside from the NHL players, Bode Miller (alpine skier), and Shaun White (snowboarder), there are very few other American Winter Olympians who make over $1 million dollars a year. Many believe that it does not make much sense to tax the other athletes, who do not make much, for proudly winning for our country.
Senator Rubio has not proposed any bills since the 2012 London Olympics; however, Rep. Blake Farenthold (R-TX) recently introduced the Tax Exemptions for American Medalists (TEAM) Act. Yes, the TEAM Act… Rep. Farenthold said that the act would stop Uncle Sam’s tax on these hardworking athletes, and let them enjoy their winnings.
Adam Radman, the Americans for Tax Reform spokesman, told MailOnline that “it’s bad enough that the toilets don’t work in Sochi. Now our athletes are going to have to flush their hard-earned prize money down the IRS commode.”
REASONS WHY THERE SHOULD BE A MEDAL TAX:
Winning a medal can mean a lot more than an immediate cash payout from a nation’s olympic committee. There are many profitable advertising, endorsement, and book deals along with appearance fees that come from winning.
Furthermore, Forbes columnist Robert Wood points out that the IRS website states that whether you win a drawing, quiz show, or beauty contest, it is all taxed. It is the same rule for any cash prize: the lottery, a Nobel prize, and Olympic medals too. “Unless forfeited, all winnings are considered taxable income and will be reported to the IRS,” he says.
Finally, many of these winning Olympians might not have to pay any taxes on their medals and bonuses. Athletes can treat their participation in their sport as a business. Related business expenses are deductible on a federal income tax return. According to the IRS, these deductions just need to be “ordinary and necessary.” It could be easy for these athletes to use this criteria and to then deduct training, coaching, and travel expenses from their income.
Winning athletes can also choose another path for savings. Instead of treating their participation as a business, these athletes can consider their sport as a hobby, “but only to the extent there is income to offset those winnings and only if a taxpayer itemizes.”
The debate will continue in the media and on Capitol Hill with no end in sight; nevertheless, we must remember that these athletes are just like hundreds of thousands other perseverant Americans who receive little to no fame, have to pay taxes every year, and do not have an abundance of opportunities for advertising, endorsement, and book deals.
JDKatz, P.C. is a full-service law firm focused on tax law, business and transactional law, estate planning and elder law. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys, or visit http://www.jdkatz.com.