US swimmer Nathan Adrian won a gold medal in the 100-meter freestyle race by edging out his nearest challenger by a mere one-hundredth of a second. Thanks to that millisecond victory, Adrian will owe at least $6,250 in federal income taxes.
It's not just the value of the gold medal that's causing the tax problem. The US Olympic Committee rewards medalists with honorariums. The payoff for a gold medal is $25,000, $15,000 for a silver, and $10,000 for a bronze. Therefore, if Adrian is conservatively in the 25 percent tax bracket in 2012, winning the gold will cost him $6,250 in tax on the honorarium, or $2,500 more than he would owe if had placed second. If Adrian manages to reach the 35 percent bracket due to revenue from endorsements and appearances, the tax difference is $3,500.
No one is exempt from this tax fallout. All medalists, from the greatest Olympian medalist in history, Michael Phelps, to high school senior Missy Franklin, must pay taxes on their haul in London.
The media has been all over this story this week. Responding quickly to the reports, Senator Marco Rubio (R-Florida) and Representative Blake Farenthold (R-Texas) have proposed new legislation that would exempt athletes performing in the Olympics from the federal income tax.
"Our tax code is a complicated and burdensome mess that too often punishes success, and the tax imposed on Olympic medal winners is a classic example of this madness", said Rubio. He added that the athletes shouldn't have to worry about an extra tax bill waiting for them when they come back home. Proponents of the Olympic Tax Elimination Act have drawn comparisons to the tax exemptions available to military servicemen and servicewomen who are deployed in combat zones around the world.
Although the bill is likely to gain favor while the Olympic fervor continues, it won't even be considered until Congress returns from its month-long recess in September.