As the 2014 Winter Olympics kick off, U.S. athletes are preparing to face off against some of the world’s greatest talents. Yet, the only thing colder than the slopes at Sochi tonight will be the fact that a large chunk of Olympic athletes’ winnings will be lost to the IRS in taxes.
The U.S. Olympic Committee (USOC) awards each American athlete prize money for medals earned while representing the U.S. in the Olympics. Ironically a portion of those prizes will be paid to the U.S. as income taxes. Under U.S. tax law, American medalists must add the value of their Olympic winnings to their taxable income.
The prizes offered by the USOC are: $25,000 for gold; $15,000 for silver; and $10,000 for bronze. A U.S. gold medalist such as Shaun White, who would likely fall into the top income tax bracket, would pay over a third (39.6 percent) of his Olympic prize money in income taxes.
Although this may seem like a drop in the bucket for the “Flying Tomato” who averages around $10 million in endorsements annually, compare him to gold medalist Gabby Douglas. The debt accumulated by Douglas’s mother in trying to finance her daughter’s 2012 Olympic run contributed to her filing for bankruptcy. A 15 percent income tax on a $25,000 USOC prize may not seem like a huge chunk, but to a single mother making $30,000 annually and trying to finance her daughter’s Olympic dreams, that chunk hurts.
In the end Douglas did receive large endorsement contracts, but the point is that every American medalist is not Gabby Douglas or Shaun White. For instance, Olympic skeleton racers likely don’t have multi-million dollar endorsement deals to offset their expenses after earning medals. You probably don’t even know what skeleton is. It’s also important to point out that the rates mentioned are just federal and don’t include the state income taxes added on top.
The absurdity of taxing American athletes for successful Olympic representation was pointed out in 2012 by Sen. Marco Rubio (R-FL) when he introduced S. 3471, the Olympic Tax Elimination Act (OTEA). The OTEA would have amended the Internal Revenue Code to eliminate the tax on Olympic prize money and medals won by U.S. athletes. That effort has been revived this week in the House by Rep. Blake Farenthold (R-TX) who introduced H.R. 3987, the Tax Exemptions for American Medalists Act (TEAM).
You may be asking how income earned in Russia is subject to U.S. income tax. This is where the tax plot thickens. The U.S. is one of only a handful of developed countries that taxes its citizens on income earned abroad. This is obvious incentive for international earners to keep their money outside of the U.S. A 2014 estimate by Forbes found that this U.S. tax policy has “effectively locked out up to $2 trillion in foreign earnings” that would have otherwise been repatriated.
Taken together – the tax on Olympic athletes and the tax on income earned abroad – it can be said the U.S. has officially “earned the gold” for having one of the most backwards and illogical tax codes in the world.