Winning an Olympic medal comes with a tax bill
Many of the country’s best athletes have given the U.S. big wins at this year’s Olympics, and the U.S. is going to give them something right back: a tax bill.
That’s right — winning an Olympic medal comes with a tax bill. The U.S. Olympic Committee pays athletes $25,000 for winning gold, $15,000 for silver and $10,000 for bronze; winners in the Paralympics get $5,000 for gold, $3,000 for silver and $2,000 for bronze.
In the eyes of the IRS, those winnings are taxable income. However, because the U.S. has a progressive tax system that taxes higher income at higher rates, the size of that Olympics tax bill depends on how much the athlete already makes.
Crunching the numbers
There are seven federal income tax brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. Single filers with a taxable income of $32,000, for example, landed in the 15% tax bracket; they paid just 10% on the portion of their income that falls into the lowest bracket — up to $9,225 — then 15% on income above that amount.
Thanks to big-time endorsement deals, some athletes are in really high tax brackets. Someone like gymnast Aly Raisman, for example, who won gold in London in 2012 and again this year in Rio, reportedly has signed endorsement deals over the years with Poland Spring, Ralph Lauren, Pandora Jewelry and Reebok. Someone like her could be all the way up in the 39.6% bracket, depending on how big the deals were, and in that case, a gold medal could generate a $9,900 tax bill.
But if an athlete has a regular job — and many do — he or she may only be in the 25% tax bracket, for example, and that could mean $6,250 in taxes for bringing home gold. Of course, none of this includes state income taxes.
In certain circumstances, athletes can deduct their costs for coaches, travel, equipment and other expenses, which could offset their taxable Olympic winnings. Nonetheless, those medal winnings still become part of the athlete’s income calculations when it comes time to tally federal and state taxes.
Looking ahead
Some states have moved to change their rules. In 2014, Indiana exempted Olympic winnings from state income tax, and California’s legislature is considering a similar course.
Legislation was introduced in Congress in 2012 and 2014 to stop the IRS from taxing Olympic wins at the federal level, but those efforts failed.
In July, the Senate relit the tax-exemption torch by passing the United States Appreciation for Olympians and Paralympians Act, which would exempt Team USA members from federal taxation on their Olympic wins. The question now is whether the House will take the torch and run with it.
Until then, there may be another reason some U.S. athletes are crying on the medal podium at Rio: They’re doing the math.
Source: MarketWatch
