So let’s just say you are a star athlete, have trained unceasingly with laser focus. You’ve finally made it to the pinnacle – the Olympics. Many countries reward their top athletes with various incentives for their performance in the Games. And America is no exception. U.S. athletes who win their competitions get two forms of direct compensation. First, of course, is their medal—gold, silver, or bronze. At this time they are required to pay tax on the “commodity” value of the medal, ranging from perhaps $700 for gold to about $5 for bronze. Second, the U.S. Olympic Committee (not the U.S. government) pays a cash bonus of $25,000 for gold, $15,000 for silver, and $10,000 for bronze. Those winnings are taxable just like any other income.
With Americans paying close attention to the London Olympics, Grover Norquist and Marco Rubio have launched a new bill to make these Olympic proceeds tax-exempt
A July 31, 2012, blog post on the website of Norquist’s group, Americans for Tax Reform, had the headline, “Win Olympic Gold, Pay the IRS: U.S. Olympic medal winners will owe up to $9,000 to the IRS.”
Well, while that’s possible true, it’s highly unlikely. The $9,000 was calculated using the top tax rate of 35%. A gold-medal winner would owe $8,986, while a silver-medal winner would owe $5,385 and a bronze winner would owe $3,502.
Really though, most athletes won’t be helped very much by this new bill. A single person whose only income is her $25,000 cash award and who has no deductions would owe about $1,900 in federal income tax. But an athlete who receives a medal bonus would be free to deduct any unreimbursed expenses from the bonus, lowering — or maybe even eliminating — their tax hit It is not unreasonable to suspect that in the real world, many of those low-income non-professional athletes already owe little or no tax on their Olympic cash bonus. An Olympian fencer told Forbes.com that her expenses for equipment and competitions run around $20,000 per year.
And while some world-class athletes come into the Olympics as international superstars with lucrative endorsement deals, most athletes earn less. One study conducted by the Track & Field Athletes Association that found that about half of track and field athletes who ranked in the top 10 in the U.S. in their event made less than $15,000 annually from the sport in sponsorship, grants and prize money. About 20 percent of such athletes made more than $50,000 annually. And beyond spotlight athletes such as sprinters, milers and distance runners it’s even harder to make any money.
Thoughts? Should the athletes be taxed on their Olympic proceeds or should they be tax-free?