U.S. Olympic medalists who win medals at the Sochi Olympics will also earn large cash awards. However, these are taxed considerably above the usual income tax rate. Nonetheless, the athletes have access to reducing the taxes owed, should they bring home a medal. The medals themselves are not taxed. The right strategy can reduce the amount of taxes owed.
Athletes will earn $25,000 per gold medal, $15,000 for a silver medal, and $10,000 for a bronze medal. The Internal Revenue Service (IRS) regards these awards as earned income abroad, thus the winners will have to pay 39.6 percent income tax. A gold medal winner will pay almost $10,000 in total taxes.
While other countries’ athletes receive cash payments, many do not owe taxes. According to conservative group Americans for Tax Reform, the U.S. athletes should not either.
U.S. Representative Blake Farenthold (R-TX.) brought forth the Tax Exemptions for American Medalists (TEAM) Act, which would exempt U.S. Olympic athletes from paying taxes on the medals and any money earned. Farenthold echoed the Americans for Tax Reform’s basic grievances, stating that the current tax system has become excessive, and that the taxes facing Olympic athletes is an example of this.
Medal winning athletes have empathetic voices in Washington. During the 2012 presidential election, Republican nominee Mitt Romney and President Obama both backed a proposal to reduce income taxes related to medal winnings. A recently proposed compromise taxes earnings from medal winnings at a rate as low as 10 percent. However there may be taxes levied by states and cities in addition to federal income tax.
Tax Foundation, a nonpartisan organization, offers a suggestion that would help athletes with the tax related issue. It states that the U.S. should adopt a so-called “territorial” tax system. Such a policy would allow Americans, including Olympic athletes, to avoid paying the higher taxes associated with working abroad. The group states that much income is already taxed in the person’s host country.
With the help of agents and lawyers, Olympic athletes have some options to maximize their earnings and post-tax savings. If a sponsor wants an Olympian’s smile on a box of Wheaties Cereal (Mary Lou Retton), the athlete can accept a single cash payment for the endorsement. An alternative for the athlete is to have the cash sent to Wheaties (or whoever the sponsor is), which then pays the amount over a series of periodic installments, plus interest. The money would all still be taxable, of course. But the interest may be high enough to reduce the impact of income tax.
The Olympics remain an icon of love for sport, sportsmanship, patriotism, and good will. However, as with professional and collegiate athletics, the Olympics are undeniably tied to monetary funding and incentives. As such, income tax promises to be a fact of life for athletes. Those taxes will either have to be paid immediately along with single cash awards, or periodically with long-term endorsements. For those Olympians who do indeed win a medal at the Sochi Games, reducing the amount of taxes taken owed promises to be a challenge, something Olympic athletes are known to embrace.
By Ian Erickson