In addition to the medal and worldwide recognition, victorious US athletes also receive a cash bonus from the US Olympic committee based on the medals they take home. The current payout rates are $25,000 per gold medal, $15,000 per silver and $10,000 per bronze. Viewers everywhere are on the edge of their seats rooting for their favorite athletes to take home the gold, but few understand the tax implications that the Olympic athletes face once they make it to the podium.
The majority of, if not all, Olympic athletes compete for the pride of victory and to represent their country on the national stage; they are not focused on an economic reward. Even though economic enrichment is not their end goal, the earnings they receive are still considered taxable income per IRS tax regulations. The value of the medals and any bonuses awarded to athletes are also considered gross income under Section 61 of the Internal Revenue Code and as such are taxable to the athletes. Under the current tax rates, our star athletes could be paying up to 39.6% in taxes on their victories.
Over the past few years, there has been bi-partisan support to pass a bill that would exempt the value of these medals and rewards from the athletes’ taxable income. In fact, one such bill, the United States Appreciation for Olympians and Paralympians Bill (Sen 2650), has passed the Senate and is currently awaiting House approval. However, in the past these bills have fallen by the wayside and were forgotten about. There is always the possibility that this will happen to the current bill as well.
Not all is lost for Olympic athletes in terms of the taxation of their rewards. Many Olympic athletes will qualify to treat their activity as a trade of business, and as such, be able to deduct incurred costs, such as coaches, training and travel against the value of these medals. This could significantly lower or even end up completely eliminating their tax bills. If athletes do not pass the trade or business test, the income will be considered hobby income and they may still be able to claim certain expenses to offset it. By utilizing either of these strategies, athletes can effectively shield their hard-earned income from taxation.
Edward McWilliams, CPA
Ed is a Partner in the firm’s tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.