Imagine the thrill of winning an Olympic medal—the applause, the pride, the shiny medal hanging around your neck. It's not just about the medal, though; there's also a cash prize and endorsement deals waiting for you. But while you're basking in the glory, don't forget there's another party interested in your winnings—the IRS.
When an athlete wins, it’s not just the podium that gets their attention. The United States Olympic & Paralympic Committee hands out cash prizes too: $37,500 for gold, $22,500 for silver, and $15,000 for bronze. And let’s not forget the track and field athletes, who are also in line for a hefty $50,000 from World Athletics for a gold medal. While this money is well-earned, it also brings tax obligations.
Before 2016, all that prize money (and even the value of the medals) was considered taxable income under federal law. But, recognizing the sacrifices these athletes make, a few years ago, Congress passed a law to provide some relief. Now, unless an athlete earns over $1 million a year, they can enjoy their winnings tax-free—at least at the federal level.
Keep in mind that athletes like Simone Biles or LeBron James, who earn millions annually, will still need to pay their share of taxes on these prizes. For first-time medalists, especially those just starting out, like young Hezly Rivera who helped the U.S. gymnastics team win gold, the tax burden might be significantly less—or even non-existent. Phew!!
Yet, not all states are as forgiving as the federal government. For instance, California requires athletes to report their winnings as taxable income. And if an athlete’s endorsement contracts include bonuses for winning, those earnings are definitely going to be taxed.
Internationally, things can get even more complicated. Under certain tax treaties, like the one between the U.S. and France, Olympians may still have to pay taxes in the host country if their winnings exceed certain amounts ($10,000 in France). This means that any US Olympic medalist will be required to file a French tax return!
Planning ahead can make all the difference. Even athletes who are exempt from the victory tax will still benefit from professional tax advice as they navigate the influx of endorsements and other opportunities that follow their win. If you're an athlete, an Olympic hopeful, or a couch potato with big dreams, now is the time to think about how to manage your winnings and wealth wisely.
Reach out to us today and we will work with your tax and financial advisors, or guide you to one if you don't have one yet, and help you navigate these tricky waters and ensure that the victory remains sweet without any unexpected financial surprises.
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