Olympic Medal Dreams: All That Glitters Is Taxable

It’s the opening week of the 2014 Winter Olympics in Sochi, Russia – a time in which these athletes have invested their lives and their fortunes. Often in connection with major sporting events, like the Super Bowl and the World Series, you hear the phrase, “it’s not about the money,” even though many of those athletes get an obscene amount of compensation. However, for Olympic athletes, it truly is not about the money.

In spite of the widespread belief that US Olympic athletes are wealthy, many actually have to borrow from others to afford their training. They and their families have sacrificed everything for a shot at the Olympic Games. As you can imagine, overall funding for the Olympics is enormous. But only about 10.3 percent is used for the direct financial support of athletes, by way of grants.

What Do Medal Winners Receive?
Of course, there are financial awards for our athletes who bring home medals. US gold medalists in the Winter Olympics receive a $25,000 cash award from the US Olympic Committee, while silver medalists get $15,000 and bronze medalists $10,000. These amounts have not increased in several years. Many believe the medals themselves are valuable for their precious metal content; but the gold medal, for example, is more than 90 percent silver.

Some athletes receive stipends to pursue their athletic training, but again, the stipends are not lucrative. Clearly, for US Olympic athletes, the motivation is intrinsic, not monetary.

Not only is there not a lot of financial incentive, but what they do receive is taxable by Uncle Sam. Even those with the lowest incomes will pay at least 10 percent to the IRS, and depending on where they live, possibly another slice will be owed in state taxes. For example, a snowboarder who lives in South Dakota, where there is no state tax, and who has a fairly low income apart from the gold medal cash award, might pay only 10 percent on her winnings.

CPA Robert A. Raiola, the sports and entertainment senior group manager in the Cranford, New Jersey, office of O’Connor Davies LLP, took a look at the taxes a high-income New Jersey resident might pay for a gold medal win.

“Under the US graduated tax system, the individual rates are 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent,” he said. “The highest rate of 39.6 percent kicks in when a single individual makes taxable income over $406,750 in 2014.”

This means Olympic athletes with substantial incomes outside of the Olympics – like a member of the US Men’s Hockey team – will be paying the top federal rate.

“If a player on the US Olympic Hockey team is a New Jersey resident and is awarded a gold medal, he'll pay the top federal rate of 39.6 percent, plus state tax of 8.97 percent on his $25,000 cash award,” Raiola said. “That's roughly $12,000 in taxes, or almost 50 percent. Of course, athletes can also deduct business expenses that are ordinary and necessary, in relation to the production of their income.”

There are ongoing efforts in Congress to make the cash prizes for Olympic medals federal tax-exempt. According to a recent article by The Hill, Representative Blake Farenthold (R-TX) has proposed the Tax Exemptions for American Medalists (TEAM) Act, HR 3987. The legislation would allow medal winners in Sochi to avoid federal taxes on the cash prizes associated with their medals.

The good news is Russia is not taking a tax bite for amounts earned or won in Sochi. Raiola was able to connect with a tax specialist in the Russian office of PKF International (O’Conner Davies is a member firm in PKF International) to confirm the Olympic tax situation. His source, Dmitry Paramonov, provided Raiola with the applicable tax code, Article 217, which states:

 

The following types of income of physical persons shall not be taxable (shall be exempt from taxation):

20) prizes in monetary and (or) non-monetary form which are received by sportspersons, including disabled sportspersons, for prize-winning places in the following competitions:

- the Olympic, Paralympic and Deaf Olympic Games, the World Chess Olympics and world and European championships and cup competitions from the official organizers or on the basis of decisions of State bodies and local government bodies from the resources of the appropriate budgets;

- championship and cup competitions of the Russian Federation from the official organizers.
 

How Do Other Countries Reward Their Medal Winners?
According to an article by Radio Free Europe/Radio Liberty (RFE/RL), some countries pay a great deal more than the United States – hundreds of thousands of dollars in some cases. But, as the article points out, some of those high-cash bonuses are offered by countries that aren’t expected to win medals at Sochi. In fact, fifty-one of the eighty-eight countries that sent athletes to Sochi have never won a medal. Of those countries, seventeen are pinning their hopes for a medal on one athlete in one sport, according to a report by The Wire.

According to the article by RFE/RL, Azerbaijan will pay a gold medalist $510,000, a silver medalist $255,000, and a bronze medalist $130,000. The country sent four athletes to Russia, but none of them is expected to win.

Kazakhstan did win one Olympic medal in Vancouver, British Columbia, in 2010. If one of its athletes is awarded a gold medal this year, that person is eligible for a cash prize of $250,000. The country also gives out $150,000 for a silver medal and $75,000 to athletes who finish in third, fourth, fifth, or sixth place.

Host country Russia will award gold medalists $113,000, silver medalists $71,000, and bronze medalists $42,000. In Vancouver, Russian athletes won fifteen medals, three of which were gold.

There are also many countries that pay much less than the United States. Canada, for example, will pay gold medal winners $9,000, silver medal winners $6,800, and bronze medal winners $4,500.

A private foundation in Germany will pay athletes from that country between $2,000 for an eighth-place finish up to $20,000 for a gold medal.

Correction: Incorrect information regarding self-employment taxes in South Dakota and New Jersey appeared in an earlier version of this article. That information has been removed. We apologize for any inconvenience.

Related article:

Legislation to Exempt US Olympic Medalists from Tax Comes Out Right on Cue
Taxes Can Tarnish Olympic Gold

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