How much are we taxed
How Much Are Olympic Winners Taxed? It Depends.
When Team USA’s Olympic champions make it to the illustrious three-tiered rostrum to receive their medals, they’re awarded with priceless bling — and some extra cash. On top of their hardware, the U.S. Olympic Committee awards each of our medalists a cash prize ($25,000 for gold medalists, $15,000 for silver and $10,000 for bronze). On top of that payout, some athletic associations reward their athletes even more: USA Cycling awards gold medalists $100,000. All that prize money — and, some say, even the value of the medal itself (about $664 for the gold medal’s metal) — is considered taxable income by the IRS, taxed at a rate consistent with the individual athlete’s tax bracket. The athlete may also owe self-employment taxes on his net income.
Much has been in the news lately about whether or not the athletes representing the USA in the games should be taxed, with some publications reporting that our nation’s finest athletes may be liable for up to $9000 in taxes when they’re back stateside. In fact, last week, Florida Senator Marco Rubio proposed the Olympic Tax Elimination Act, a legislation that would exempt Olympic winnings from being taxed.
But how much are our Olympic champs really taxed? No big surprise here: it depends on the athlete.
While top-earning athletes in high profile events may be taxed a significant amount (hello, LeBron James), others won’t be dinged quite as severely. A swimmer with endorsement deals amounting to $5 million in annual income will have his winnings taxed at the 35% marginal rate plus any self-employment taxes owed. But ESPN notes that “a recent study by the Track and Field Athletes Association shows that 50 percent of the top 10 competitors in each event make less than $15,000 a year in sponsorships, grants and prize money.” How would those athletes’ taxes look? Well,
it depends on their filing status.
The standard deduction (or itemized deductions, if greater) would first be subtracted from taxable income to determine the tax rate (this is why if you don’t have enough taxable income to file a return, you don’t owe any tax). With that said, if their taxable income (income minus standard deduction/itemized deductions) is $15,000, they are taxed at an income tax rate of 15% for Single Filers, 10% for Married Filing Jointly, and — depending on expenses and employment status — they may also have to pay self-employment taxes.
And what about those deductions for expenses related to training and travel? Per H&R Block Tax Pro Eric Strawder:
Even if the athlete was engaged in the sport as a hobby, he or she could deduct these expenses up to the income he or she earned from the sport. For the self-employed athlete, the expenses could generate a loss that could be deducted against other income or to generate a net operating loss (called a NOL) that may offset other income. Since there are typically substantial expenses associated with competing in the Olympics, many athletes won’t pay any taxes on the full value of the medal or the prize money; they would only pay taxes on the net amount (the income minus the expenses). But if the self-employed athlete starts losing too much money, the IRS may say that the activity is mainly for personal pleasure, not for profit, and ultimately disallow the loss deductions.
The proposed Olympic Tax Elimination Act is a contentious issue, certainly — but it’s important to understand the tax situation from athlete to athlete may vary wildly; not every athlete earns as much as Michael Phelps and therefore would certainly not be returning home to a tax bill quite as hefty. To find out more about the proposed legislation (and to check in on their current status), click here .Source: blogs.hrblock.com