A first-time Olympic medalist's life is almost certain to change a lot after a monumental victory—along with recognition and medal(s) comes prize money and endorsement deals. But in addition to hiring a team or public relations manager to keep up with their appearances and deals, many athletes should also consider hiring a wealth advisor or estate planner, because when they win big, so does Internal Revenue Service.
A “Victory Tax”
In addition to the medals awarded by the International Olympic Committee, the United States Olympic and Paralympic Committee awards a cash prize to athletes for victory—$37,500 for gold, $22,500 for silver and $15,000 for bronze. Athletics also became the first sport to introduce prize money at the Olympics, with World Athletics paying $50,000 to each individual gold medalist and $50,000 to be split between the winning relay teams in Paris.
Historically, prize money and the value of any medals awarded were treated as income for federal tax purposes under section 74 of the Internal Revenue Code. However, after the 2016 Olympics, the Obama administration decided that penalizing athletes who make personal sacrifices to train and represent the United States on a global stage was not fair. As a result, Congress passed HR 5946, the US Olympians and Paralympians Appreciation Act (the Act), which amended IRC Section 74 to make a distinction for those athletes with more modest financial success.
While those athletes who earn more than $1 million in earnings after deductions are still subject to the so-called “win tax” at the top marginal rate of 37%, those who earn less than that threshold amount are now spared from tax. So while someone of the stature of Simon Biles, who potentially rakes in millions in appearances and endorsements, or Lebron James, who is paid millions by the Los Angeles Lakers, likely owes thousands in taxes on their medal winnings, an Olympian for the first time. A gold medalist, like 16-year-old Hezly Rivera, who helped lead the U.S. gymnastics team to gold, may owe nothing.
However, some states, such as California, still require athletes who bring home a medal to report that income for state tax purposes. Additionally, bonus money awarded by World Athletics is not exempt from the law, which only excludes “the value of any medal awarded or any prize money received by the United States Olympic Committee by reason of competition in the Olympic Games or The Paralympic Games.”
Money earned by U.S. athletes who may have bonus clauses in endorsement contracts triggered by winning a medal is also not exempt from the law and is taxable under federal and state tax laws.
Other tax consequences
Typically, Olympic athletes (and most other participants in international athletic events) do not face any international cross-border taxes, as host countries usually have special tax treatment for awards to non-resident athletes. Under a US-France tax treaty, however, “artists and athletes,” which includes Olympians, are only exempt from paying French taxes up to $10,000 for services performed while in France. Since the gold, silver and bronze medals all pass that threshold, the American winners will have to file a French tax return.
Transferring Olympic prize money directly to charity won't allow an athlete to save taxes either—under Section 74, prizes and awards are excluded from gross income only if “the recipient is selected without any action on his part to enter the competition or continuing.” The tax consequences of prize money refunds become murky under the IRC, as do reimbursements for travel, training and other expenses leading up to the Olympic Games.
Even those athletes who save the winning tax will likely need professional tax advice to tread the waters as endorsements and other opportunities flood in after the win.