Paul L. Caron

Thursday, August 2, 2012

The Tax Treatment of U.S. Olympic Medal Winners

London-olympic-logoThe Weekly Standard: Go for the Gold! (Pay the IRS.):

Because conservatives are scrooges, the good folks at Americans for Tax Reform have gone through the fine print to find out what our Olympians will have to cough up to the IRS should they be lucky enough to win any medals in London.

Americans for Tax Reform, Win Olympic Gold, Pay the IRS: U.S. Olympic medal winners will owe up to $9,000 to the IRS:

While 529 hardworking athletes proudly represent the United States in the 2012 Olympics, any medals and money they earn wearing red, white and blue will be taxed by the IRS. According to research done by the Americans for Tax Reform Foundation, U.S. Olympic athletes are liable to pay income tax on medals earned and prizes received at the London games.

American medalists face a top income tax rate of 35 percent. Under U.S. tax law, they must add the value of their Olympic medals and prizes to their taxable income. It is therefore easy to calculate the tax bite on Olympic glory.

PolitiFact:  Can Going for Gold in London Come With a Big Tax Bill?:

Americans for Tax Reform is correct that gold medalists' winnings are taxable, and it provides some leeway by saying that U.S. winners could be taxed up to $9,000.

Still, it's not likely that anyone would pay that much per medal in taxes. Any accountant worth their salt should be able to get the tax bill on medal winnings well below $9,000, and maybe even to zero. We rate the statement Mostly False.

Americans for Tax Reform:  Responding to Politifact on Olympics and Taxes:

Politifact did an analysis yesterday where they found that ATR's claims about Olympic medalists paying taxes on their prizes was "mostly false." ATR stands by our research and finds the following flaws with Poltifact's analysis:

  • ATR's primary claim is that the prizes are taxable, not that all medalists will necessarily owe $9,000 in taxes.
  • ATR consistently said that prizes were taxable "up to" a 35% marginal tax rate.
  • Deducting training expenses is not as easy as Politifact makes it sound.
  • Politifact seems confused about how to use average vs. marginal tax rates.
  • The goalposts got moved in order to slam ATR.

Politico: Marco Rubio: Don't Tax Olympic Medals:

Marco Rubio introduced today The Olympic Tax Elimintion Act, which would exempt U.S. Olympic medal winners from paying taxes on their medals.

Salon: Romney’s Olympic Tax Myth:

Republicans are outraged that Obama will tax Olympic athletes. Why he probably won't, but he should anyway.

Christine Hurt (Illinois), Should Olympians Be Taxed on Their Honoraria?

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No doubt the medals are, and should be, taxed similar to other accretions to weath--clearly realized, and over which the athletes have complete control. Aside from the glaring irony that arises in this case (those who ordinarily oppose "loopholes" want to create one here) the real question ought to be: Is a Phelps gold medal worth the same as the gold medal for the 10 Meter Air-Rifle event?

What if the medal is donated to a charity? Generally, there would be no gross income or gross income with a concommitant section 170 deduction as the medal would first go to the athlete and then to the charity. Suppose a willing buyer offered to pay more than $9,000 before the event? Or, twice that amount for a world-record gold medal?

Can US (professional) olympic basketball players (who are in the trade or business of playing basketball) deduct costs related to earning the medal? Case law seems to imply that the answer is not a resounding no.

Interesting material for exam questions on gross income.

Posted by: Nutty Tax Professor | Aug 8, 2012 3:20:20 PM

I'm no accountant. This says up to 35% and as much as $9000.00. Is the tax on these things progressive(term?)? Would a single bronze ($10,000.00) be taxed at a lower rate than a gold($25,000)? Wouldn't you need to win at least six figures to be at the 35% tax rate? Michael Phelps may come close to that level. Do soldiers pay taxes? Police officers and Firefighters do. If you win money are you a professional?

Posted by: A.J. | Aug 5, 2012 7:20:08 PM

Why don't they just go ahead and tax the sports collectible value of the Olympic medals -- not the appraised value of the metal content? Michael Phelps would have to sell half of his medals to pay for those taxes. It's a better deal than taxes on artwork that cannot be sold. Oh, and make sure that the winners pay self-employment taxes on it, too. Because this was an amateur event and not for business, don't allow deductions for the costs of training and travel. It's only fair, because they didn't earn those medals on their own -- government helped them with roads and bridges. Customs will have fun asking them the declared values of the winnings. And, then the TSA agents can hassle the winners about carrying metal objects through security for the flights to their hometowns. Sounds like cause for a strip search. Isn't government great?

And, let's play up that a "certain Republican presidential candidate" favors a special tax break for the "more fortunate" holding gold, silver, and bronze.

Posted by: Woody | Aug 3, 2012 7:48:20 AM

Help me out here. Why shouldn't Olympic athletes pay income taxes on the value of their medals and the "honoraria" they receive? Doesn't the $25k received by a gold medal winner add to his or her wealth? What am I missing? (And here I thought hese folks were cometing just for the glory of it all and the Olympic spirt and all that. Overlooking, of course, the lucrative advertising contracts that follow.) Wat's next, a tax exemption for Michael Phelps' Wheaties contract? Or maybe Rafalca (never mind, she didn't win)?

Posted by: Publius Novus | Aug 3, 2012 7:36:14 AM

If the US Olympic Committee doesn't think the athletes should be taxed, simply gross it up. We all pay tax on our earnings.

Posted by: Sterling | Aug 3, 2012 5:52:28 AM