IRS taxing Olympians for their Gold Medals?
By EVG Research Team via eMail
Ready for the latest outrage?
Last week, Americans for Tax Reform pointed out that Olympic athletes are required by law to pay taxes for winning a medal.
EVG Research Team here, and we’d like to officially join the outraged.
We think it’s ridiculous that American athletes could face paying more taxes if they win a medal for the country they represent: the USA.
We think it’s ridiculous that we’ll be just about the only country to tax an Olympian for winning a medal.
And since we sometimes teach EVG members how to lower their tax burden, we thought we might investigate this tax issue for the Olympians among us.
EVG Research Team once again discovered something most other agencies got wrong in their reporting.
So let’s get started…
Here’s What the IRS Has Their Eye On
Olympic athletes train for years to perform at an elite level. For many, most of their lives.
And once every 4 years, that hard work has a chance to pay off with a medal and a cash prize.
Clearly the real prize is the symbolism of the gold medal. Money-wise, it’s not worth as much as it looks.
The sneaky truth is gold medals are made mostly from silver. And gold, which is worth about 60 times more than silver, is only used to plate the outside.
So a gold medal is worth about $800. A silver medal about $500, and the bronze, $3.
But along with an $800 medal and its symbolism, the US Olympic Committee also awards a cash prize:
$25,000 to gold medal winners.
$15,000 for silver.
$10,000 for Bronze.
For a Michael Phelps or Ryan Lochte who sign million-dollar endorsement deals, this isn’t much. But to the average amateur shot-put thrower, this is a nice chunk of money.
How Much Could They Owe?
Until the mid 1980’s, prizes and awards were not taxed. But then the tax-grinch decided to steal Christmas with the Tax Reform Act of 1986.
It says by law, cash prizes must be reported as income. Not only that, but new property must ALSO be included as income using its fair market value as measure.
This famously became an issue when an IRS spokesperson declared whoever catches Mark McGwire’s record breaking 62nd Home Run ball would owe hundreds of thousands in taxes… even if they gave the ball back to McGwire!
So if an American gold medalist wins an $800 metal and $25,000 cash, they must add $25,800 to their total income. And if this moves them into a higher tax bracket, then they’ll pay higher taxes on their winnings.
Other reports have said they’ll be taxed at the top tax rate: 35%. But that’s only true if that’s their tax bracket after reporting the income.
This tax law is clearly in need of reform, but there is some good news…
They Usually Back Down…
The last thing the IRS wants is taxpayer outrage.
And although a tax court did uphold that LA Dodger Maurice Wills must pay a tax when he won the Hickok belt as athlete of the year, the IRS often backs down.
Soon after the IRS spokesperson said some unlucky fan would have to pay tax on the McGwire Home Run ball, IRS Commissioner Charles Rosotti bent over backwards to say otherwise…
…even though textually, the law still said a tax must be paid when you take ownership of a home run ball worth millions.
In this case, the IRS was interpreting the law on the fly.
And according to the law, gold medals are taxable as well. But experts believe the IRS would rather skip the outrage than come after an Olympian who doesn’t include their winnings on their taxes.