The 2024 Paris Olympics are in full swing, with athletes vying for coveted gold, silver, and bronze medals. These symbols of athletic achievement are not only sources of pride but also potential sources of income, which means they are also subject to taxation. Let's explore the tax implications for Olympians and how their dream pursuit might affect their tax bills.
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A Shift Towards Professionalism
For much of their history, the Olympics were restricted to amateur athletes. However, the 1988 Games saw the first inclusion of professional athletes, and this trend has continued across various countries.
More recently, the Games themselves have become a source of income for competitors. The US Olympic and Paralympic Committee, which oversees the US teams, awards cash prizes for Olympic medals: $37,500 for gold, $22,500 for silver, and $15,000 for bronze.
This year, World Athletics, the governing body for international track and field, took a groundbreaking step by announcing it would pay athletes who win gold medals. Gold medalists in individual events will receive $50,000, while team event gold medalists will split a $50,000 prize. While these prizes may seem small for a professional athlete like Lebron James, they represent a substantial amount for a gold medal-winning college athlete.
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Olympic Medals and the Taxman
Under the US federal tax code, both cash and non-cash prizes are considered taxable income, subject to standard federal income tax rates, ranging from 10 to 37 percent. However, the United States Appreciation for Olympians and Paralympians Act, passed in 2016, significantly changed the tax landscape for many US athletes.
This act amended the Internal Revenue Code to exclude Olympic prizes and awards from gross income for "lower income" taxpayers, those earning less than $1 million annually. This means professional athletes, college athletes with lucrative Name, Image, and Likeness (NIL) deals, and other amateur athletes with substantial endorsement income are still subject to tax on the value of their medals and cash winnings. However, other amateur athletes can be reassured that their Olympic success won't lead to unexpected tax surprises.
While the federal exemption applies, some athletes may still face tax liabilities at the state level or even in foreign countries. California, for instance, does not follow the federal exemption and taxes Olympic prize winnings. Additionally, athletes may be subject to tax in France, as the country appears to retain the right to tax all athlete income directly related to the Olympics.
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Beyond Olympic Prizes: Other Income Streams
Beyond Olympic medals, athletes can generate income through various channels, such as NIL deals, endorsements, or even their own YouTube channels. Nile Wilson, a former Olympic gymnast, had a YouTube channel with approximately 1.5 million subscribers during the 2021 Olympics, showcasing the potential for substantial income from online platforms.
These additional income streams are subject to ordinary income tax rates. Unlike Olympic prizes, these earnings fall under business income. Athletes should track expenses related to their online ventures, such as video production costs, as ordinary and necessary business expenses can be deducted from gross income, reducing their tax bill.
Winning an Olympic medal is a momentous achievement, bringing both non-monetary and monetary rewards. Athletes are advised to carefully research the tax rules in their state of residence and consider potential French tax obligations on their Olympic winnings.
_Christina Lewellen and Nathan Goldman are associate professors of accounting at the Poole College of Management._