Go For The Gold And Pay Your Victory Tax – Olympic Medals Taxable
While millions of Americans were glued to their televisions to watch American athletes compete in this year’s Summer Olympics, the Internal Revenue Service was getting ready to make sure that all our Olympic winners pay taxes on their victories.
The Internal Revenue Code mandates that if you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income. For example, if you win a $100 prize in a marathon, you must report this income on your Form 1040. Now if you refuse to accept a prize, then you do not include its value in your income. All prizes and awards in goods or services that you accept must be included in your income at their fair market value.
The impact to a U.S. athlete who wins in the Olympics is that their prize is no different than you winning the lottery. America’s Olympic medalists must pay state and federal taxes on the prize money they get for winning. The U.S. Olympic Committee awards $25,000 for gold medals, $15,000 for silver and $10,000 for bronze.
But besides picking up the prize money as income, Olympians also have to pay tax on the value of the medals themselves. It’s not enough for the IRS to tax a U.S. athlete on the prize money but also to tax the metal. Gold and silver medals are made mostly of silver, while bronze medals are composed of mostly copper. Rio’s medals are among the largest and heaviest ever and contain about 500 grams of either silver or copper. The value of a gold medal is about $564; silver is worth about $305. Bronze is worth a negligible amount so it’s not taxed. Any athlete who accepts his or her Olympic medal and does not have to forfeit it will have to report its value as income and pay taxes on it. It does not matter that the competition took place in Brazil and not the United States.
Winning Olympic athletes from most other countries don’t have to worry about their medals being taxed. This unfairness has resulted in considerable debate during each session of Congress when a Summer or Winter Olympics is held but any legislation to change the tax law has never made it out of Congress. Leading up the 2016 Summer Olympics there is proposed federal legislation that would make “the value of any medal or prize money” awarded during the Olympics or Paralympics exempt from income taxes. The bill was passed by the Senate in July 2016 but like its predecessors, will lose momentum as the Summer 2016 Olympics fades into the past.
You would think most Americans would be in favor of the legislation but there appears to be some backlash. For example, should an Olympian who comes home with four medals conceivably make $100,000 tax free while millions of hard working Americans struggle to support their families on far less income yet have to pay taxes? Then of course one should recognize that the U.S. is the only major country that doesn’t provide government funding to its Olympians. Now a handful of lucky athletes land lucrative endorsement deals. But most of them rely on small stipends from the USOC, support from local businesses or supplemental income from a day job.
Despite which side of the argument you may stand, you need to remember that even income earned outside the U.S. may be taxable. Every year, thousands of U.S. taxpayers learn that lesson the hard way. If you live, compete or work outside the United States, you must still file tax returns here. In addition, if you win a prize or award, you must claim the value of that prize or award on your tax return as income.
I am not so convinced that an income exclusion for Olympians and Paralympians would change anything. Cutting taxes isn’t going to fix the fact that these athletes don’t get paid enough. And then how do you distinguish this from other individuals who win prestigious awards. Such is the case with Nobel prize winners who receive more prize money — around $1 million. Shouldn’t an award for such an accomplishment also be tax free? This is something maybe to write to your Congressman about.