Article Highlights:
- The Taxation of Prize Money: A Brief History
- Legislative Relief: HR 5946
- The Impact of the Exemption
- The Million-Dollar Threshold
This summer, while you watch the Olympics in Paris, consider the athletes who are striving to reach new heights. These athletes practice their skill for years, sometimes even decades, in order to get the opportunity to stand on the podium and win a medal. But there's a less glamorous side to it all that many people might not know about: the taxes of their prize money. Thankfully, these committed people have received some respite thanks to legislation amendments implemented in 2016.
The Taxation of Prize Money: A Brief History
The Internal Revenue Service (IRS) has historically levied taxes on practically all types of awards and prize money. This includes rewards from game shows on television, lotteries, beauty pageants, and yes, even Olympic gold. The reasoning for this is simple: winnings are taxable as income for federal tax purposes. Since its implementation in 1986, this criterion has been applied consistently to all categories of prizes.
This meant that American athletes competing in the Olympics would have to pay federal income tax on their hard-earned prize money. Previously, a gold medal winner received $37,500 from the U.S. Olympic and Paralympic Committee (USOPC), silver medal winners received $22,500, and bronze medal winners received $15,000. Their take-home salary may be considerably lower due to the tax on these payments. Even though the medals' real value is much less than the monetary prizes due to the weight of the metallic components, they are nonetheless considered revenue.
Legislative Relief: HR 5946
The United States Appreciation for Olympians and Paralympians Act (HR 5946) was enacted by Congress in 2016 in recognition of the exceptional quality of Olympic accomplishments and the financial struggles that many athletes confront. This law exempts athletes who make less than $1 million a year from federal income tax on prize money awarded by the US Olympic Committee to competitors in the Olympic or Paralympic Games (regardless of the prize money).
Bipartisan support for the idea that successful athletes representing the nation abroad shouldn't be punished for their accomplishments led to the creation of the measure. The value of the medals themselves as well as the monetary awards given out by the US Olympic Committee are excluded.
The Impact of the Exemption
Olympic athletes have been significantly impacted by the passing of HR 5946, especially those without rich endorsement deals. The cash awarded to gold winners serves as a vital source of revenue for several competitors, providing much-needed support in covering training, travel, and equipment expenses.
In the absence of the tax exemption, a gold medallist who wins $37,500 may see up to 37% of their winnings go toward federal taxes. This tax burden may put a serious financial pressure on athletes who depend on this money to pay for their living expenses and training.
Athletes who win gold in each of the 48 track and field events will receive a $50,000 prize from World Athletics (WA), the international athletics governing body, starting with the 2024 Summer Olympics in Paris. Athletes on gold relay teams will also get a $50,000 prize. Payments to silver and bronze medal winners in the Los Angeles Olympics in 2028 are intended to be extended. Olympic fighters will get financial awards from the International Boxing Association (IBA), another organization. A payment from WA, the IBA, or any other sports association will not be exempt unless Congress amends the statute to expand the exemption, since only payments from the United States Olympic Committee are exempt from federal tax in the United States.
The Million-Dollar Threshold
It's crucial to remember that athletes who make less than $1 million a year are the only ones eligible for the tax exemption. This cutoff point makes sure that the exemption helps athletes who don't make a lot of money from sponsorships or other sources—those who are most in need of it.
The tax on athletes' prize money is still applicable to high-earning athletes. Still, this tax will probably have less of an effect given their other sources of revenue. Due to their lucrative endorsement deals or well-paying "day jobs" as professional sports, these athletes frequently receive Olympic prize money that is relatively little subject to taxation.
For the time being, the majority of American athletes competing in Olympic sports may find comfort in the knowledge that their winnings are exempt from federal taxes, which frees them up to concentrate on their primary responsibilities of serving their nation and going above and beyond in competition.
Enjoy the Olympics.
Go U.S.A.
