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Showing posts with label win. Show all posts
Showing posts with label win. Show all posts

Sunday, August 1, 2021

Taxation of Olympic Winnings


The summer Olympics are going on in Tokyo. I have watched little of the competitions. As I have gotten older, I watch less and less television, Olympics included. My heaviest TV consumption is just around the corner, when the NFL season begins. I am an unabashed NFL junkie.

Let’s discuss the taxation of Olympic awards, including medals.

In general, the law taxes all awards and prizes. There are exceptions, of course, but for years there was no exception for Olympic medals and prize money.

This means that if someone won a gold medal, for example, Uncle Sam was standing on the podium with the athlete waiting for his cut.

Can you imagine having to pay tax on a gold medal?

Although a gold medal is not pure gold. The last pure gold medal was awarded in 1912, and today’s gold medals are over 90% silver. Gold medals at the 2012 London Olympics were less than 2% gold, for example.

Then there is the issue that a medal – once awarded – can be worth more than the weight of the metals that went into its manufacture. Boxing fans may remember the boxer Wladimir Klitschko from the 1996 Atlanta games. He sold his gold medal in 2012 for $1 million, donating the proceeds to charity.  

There may also be cash winnings. The U.S. Olympic and Paralympic Committee (USOPC) will pay a winning athlete approximately $37,000 per gold medal. While not bad, it pales in comparison to some other countries. Singapore will pay over $730 thousand for a gold medal, by comparison.

The real money of course is in endorsements. Usain Bolt receives $4 million per year from Puma as a brand ambassador, even after retirement. Not bad work if you can get it.

Back to tax. The general rule is that all prizes and awards are taxable, unless the Code allows an exception.

In 2016 lawmakers decided that it was a bad look to assess tax on Olympic winners. Two senators – John Thune, a Republican from South Dakota and Chuck Schumer, a Democrat from New York – submitted a bill to change this situation. Here is a joint statement, something we are unlikely to see again in the near to intermediate political future:

It’s no secret that athletes don’t become Olympians overnight. For many of the competitors who’ve been fortunate enough to earn a spot on an Olympic or Paralympic podium, it’s a lifetime’s worth of work that has come with years of blood, sweat and tears.

It’s a patriotic endeavor that often has a large price tag affiliated with it, too.

Under the current tax code, medals and any associated prize stipend are considered taxable income.

Tax policy is too often complicated and partisan, which makes the bill we introduced this year unique. Our bill passed the Senate without a dissenting vote, and is about as simple as they come. The bill, which awaits action in the House, would bar the IRS from leveeing a victory tax on Olympic and Paralympic medalists.

Preventing the IRS from taxing medals and modest cash incentive prizes sends the right message to present and future members of Team USA: Rather than viewing Olympic success as another chance to pay Uncle Sam, it’s a special opportunity to celebrate American patriotism and the Olympic tradition.

The tax on Olympic winnings was called the “victory tax,” and President Obama signed the United States Appreciation for Olympians and Paralympians Act into effect on October 7, 2016. There was an important issue, however: how were professionals (think Kevin Durant, for example) to be taxed? These athletes were already making eye-watering sums of money, and to exclude their winnings seemed … an overreach … if one was truly trying to reward the amateur athlete.

Here is the Code section:

           Code § 74 - Prizes and awards

              (d) Exception for Olympic and Paralympic medals and prizes

(1) In general

Gross income shall not include the value of any medal awarded in, or any prize money received from the United States Olympic Committee on account of, competition in the Olympic Games or Paralympic Games.

(2) Limitation based on adjusted gross income

(A) In general

Paragraph (1) shall not apply to any taxpayer for any taxable year if the adjusted gross income (determined without regard to this subsection) of such taxpayer for such taxable year exceeds $1,000,000 (half of such amount in the case of a married individual filing a separate return).

How therefore is an Olympic winner taxed?

·      There is no tax on the medal itself.

·      Prize money is not taxed unless the athlete has substantial other income, with substantial meaning over $1 million (half that if married filing separately).

·      Endorsement income is taxable as normal.