Olympic Medals and the Tax Man
As the Tokyo Olympics come to a close and the athletes return to their home countries, it may be time for U.S. athletes to sit down with their tax advisor. The United States Olympic & Paralympic Committee has pledged to award U.S. medalists in the 2021 Olympics $37,500 for each gold medal, $22,500 for each silver medal and $15,000 for each bronze medal won.
It may come as a surprise to some, but those financial awards for winning an Olympic medal may very well be subject to income tax. The U.S. tax code specifically includes prizes and awards in gross income subject to income tax. Some refer to this as the “victory tax”.
Fortunately, many winning athletes will not pay income tax since the tax code exempts prizes and awards from income tax for those athletes making under $1 million dollars annually. For the lucky few athletes with lucrative endorsement deals such as Sue Bird or Katie Ledecky, they can expect hefty federal tax bills. In the case of Ledecky, she will likely owe over $44,000 in federal income tax for her 2 gold and 2 silver medals (at the top 37% federal rate). She may even owe state income tax depending on her state of residence. A 2016 effort to end the “victory tax” in California stalled in Committee; it remains to be seen whether a similar effort will take hold elsewhere as a new crop of Olympic medalists return home.