Did you know that Olympic medal winners must pay tax on the medals they receive? In fact, they must pay tax on the value of the medals received and the victory bonus they receive from the U.S. Olympic Committee as well. The Committee pays $25,000 for a gold medal, $15,000 for a silver medal and $10,000 for a bronze medal to our US Olympic athletes. The IRS views these bonuses and medals as they do any other prize winnings such as winnings from a lottery, game show or casino and they are taxable income under the Internal Revenue Code.
Some estimates of the monetary value of an Olympic medal are $501-$644 for gold, $300-$330 for silver and relatively little value ($5) at all for bronze since they are usually a mix of zinc and copper.
Keep in mind that athletes can potentially offset this taxable income with the thousands of dollars in expenses they most likely have paid out while training and traveling if they treat their sport as a profession for tax purposes. In addition, unless the athlete is already in a higher income tax bracket due to endorsement deals, the tax imposed on the medal and Olympic Committee bonus could be rather insignificant since they would qualify of lower marginal tax rate brackets on their tax returns.
Some in Congress have proposed a change in the Internal Revenue Code that exempts Olympic athlete medals and bonuses from taxation but so far they have not been successful. Some states have actually passed legislation that exempts Olympic athletes who reside in their state from paying state income tax on the value of the medals and bonuses.
I have listed below the guidance provided by the IRS in relation to reportable income from gambling winnings, lotteries and raffles, and prizes and awards for reference.
Gambling winnings. You must include your gambling winnings in your income on Form 1040, line 21. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. If you are in the trade or business of gambling, use Schedule C.
Lotteries and raffles. Winnings from lotteries and raffles are gambling winnings. In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses and other noncash prizes. However, the difference between the fair market value and the cost of an oil and gas lease obtained from the government through a lottery is not includible in income.
Prizes and awards. If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income. For example, if you win a $50 prize in a photography contest, you must report this income on Form 1040, line 21. If you refuse to accept a prize, do not include its value in your income. Prizes and awards in goods or services must be included in your income at their fair market value.
As usual, the IRS considers all forms of income as taxable income unless it is specifically excluded from taxation by the Internal Revenue Code. To date, Olympic medals and related Olympic Committee bonuses received are not excluded from taxation and, therefore, must be reported on the tax return of Olympic athletes for the year in which they receive the medals or bonuses.
If you have any tax or accounting questions or needs, please contact us as we would be glad to assist.