Phelps’ Gold Medals Will Land him “Victory Taxes”?August 17, 2016
Phelps will leave Rio 2016 with six new medals, and a hefty bonus, but he will also leave with a hefty tax bill, which some are saying is unfair.
Even if you’re winning medals in the U.S.’ name, you are still on the hook for taxes. Something known as the “Victory Tax” is assessed on Rio 2016 winners on account of the cash bonuses that come with each medal- $25,000 for gold, $15,000 for silver and $10,000 for bronze. This has many questioning...should these prized athletes be taxed for their winnings?
More about the victory tax
The IRS views Olympic medals and bonuses as they view other prize winnings, like those gained from lottery and casino, meaning that they are taxable. Prize winnings are considered income by the IRS, hence the taxes attached to the cash winnings.
How much in taxes are we talking?
Using the top tax rate of 39.6% for the nation’s top earners, the maximum possible victory tax on the bonus for each....
- Gold medal is $9,900
- Silver medal is $5,940
- Bronze medal is $3,960
Obviously, athletes in lower tax brackets will owe less. Taking into account swimmer Michael Phelps’ five gold medals and one silver medal, his tax bill will be roughly $55,000. For gymnast Simone Biles, she can expect to spend more than $30,000 in taxes after her winnings.
How much are the medals worth?
Keep in mind that the medals themselves are also taxed.
- Gold is worth roughly $600
- Silver- $300
- Bronze- very little, just a bit over $2
Because the monetary value of the actual medals is not itself high, you can expect to pay a relatively small tax bill for this part of the winnings.
Any chance this tax will be repealed?
Though Phelps and other athletes’ net worths far exceed what they’ll owe to Uncle Sam, it is the feeling of many, nevertheless, that athletes should not have to worry about breaking the bank while they’re exhausting physical and mental energy trying to set world records. In 2012 Florida Senator Marco Rubio proposed a bill to get rid of the tax, and two senators this year have sponsored similar bills to repeal this tax.
Tax is harder on some athletes over others, but the blow can be softened
Another reason many support repeal of this tax is that unlike other countries, the U.S. government does not provide funds for Olympic athletes, making it harder for some to get by. Many Olympic athletes do not make other income from their sporting activities (many of the multiple medal winners have endorsement income) and thus paying a victory tax, on top of their training expenses, adds “insult to injury”. The taxable income from winning a medal, however, may be offset in whole, or in part, by unreimbursed expenses they incur in training for their sport, reducing the impact of the taxes owed from their medal bonuses.
To add to this, depending on their state of residence, athletes may also be subject to state taxation on bonuses received.
For now, it looks like the victory tax is here to stay.
Do you think it’s fair?
Our Tax Team can be contacted for further guidance or to answer your other tax questions.