For the past two weeks, spectators around the world tuned in to the summer Olympic games broadcast from Rio de Janeiro. After each thrilling victory, all eyes fall on the podium as the winners stand, teary-eyed, as their national anthems are played and their flags waved. Likely the last thought in these athletes’ minds is, “how much is this going to cost me in taxes?” But for American Olympians, it could cost thousands of dollars.
IRS taxes Olympic prizes
For all American taxpayers, the IRS imposes a tax on cash prizes – whether it is a lottery win, year-end cash bonus from work, or some other contest winning. For American athletes, Olympic medals come with a cash bonus from the U.S. Olympic Committee: $25,000 for gold, $15,000 for silver, and $10,000 for bronze. These, too, are subject to a tax that has come to be known as a “victory tax”.
The actual medals themselves are also subject to tax but only on their cash values, which is actually fairly low. An Olympic gold medal contains less than 2% gold and is only worth about $500; a bronze medal is mostly made of copper and zinc, making it practically worthless. If the athletes were to sell their medals, they would likely fetch much more than scrap metal and the income from the sale would then be taxed.
So how much will an Olympic medal cost an athlete? It depends on the athlete’s tax bracket but the top tax rate is 39.6%. This works out to a $9,900 tax on a gold medal for a top-income athlete like Michael Phelps. With approximately $55 million in the bank, Phelps is easily looking at a tax of more than $55,000 for his Rio medals.
Lobby to end Victory Tax
Not all lawmakers are in favor of the tax. In 2012, Florida senator Marco Rubio led an unsuccessful attempt to end the tax on Olympic prizes. Earlier this year, Senators John Thune of South Dakota and Chuck Schumer of New York introduced a similar bill which has already been passed in the Senate.
Overlooked taxable income
Surprise taxes do not just affect world-class athletes. Some sources of taxable income that more typically catch people off-guard include:
- Lawsuit settlements and awards
- Employment perks with a cash value, including child care contributions and tuition assistance over an IRS threshold
- Jury duty payments
- Unemployment benefits
- Life insurance under certain circumstances
- Withdrawals from retirement accounts
The tax code is long and complicated; there are many traps that can trip up a well-meaning but unprepared taxpayer. Consulting with a tax professional, however, can help prepare individuals and businesses for upcoming taxes. A seasoned tax attorney can even develop a strategic plan to minimize the taxes incurred.
Baltimore tax lawyers can help
If you or your business have received a non-regular payment, you may incur federal or Maryland tax liability. The best thing to do is be proactive. The expert Baltimore tax lawyers of Rosenberg Martin Greenberg know how to spot potential tax issues before they become a problem. Contact us to learn how we can help you improve your situation.
- 12 News, Yes, Team USA Olympians pay taxes on their medals,http://www.12news.com/sports/olympics/yes-team-usa-olympians-pay-taxes-on-their-medals/298399566
- USA Today, Uncle Sam goes for gold, too: Up to $9,900 per Olympic gold medal,http://www.usatoday.com/story/money/personalfinance/2016/08/15/olympics-victory-tax-gold-medal/88587636/
- Time, U.S. Olympic Medalists Must Pay ‘Victory’ Tax,http://www.usatoday.com/story/money/personalfinance/2016/08/15/olympics-victory-tax-gold-medal/88587636/
- Investopedia, Uncle Sam’s Surprise: Unexpected Sources of Taxable Income,http://www.investopedia.com/articles/tax/09/owe-nothing-federal-tax-return.asp