In addition to winning the medal and cash prize, Americans who medal in the Olympics will also “win” a 35% tax from the IRS. While capital gains taxes are capped at 15%, medals and prize money are apparently taxed at 35%. This is also, interestingly enough, the tax percentage I paid when I have received a “bonus” (which we got at Florida A&M University in place of a raise to offset the cost of living increase). It is certainly an interesting tax system that hits Olympic medalists and educators hard while allowing folks like Mitt Romney and Obama to enjoy rather light taxes.
An athlete who takes home the gold will also need to shell out $236 in taxes on the medal (the medal is valued at $650) and $8,750 for the $25,000 prize. Those winning silver and bronze medals will still owe 35%, but will receive less (since the bronze medal is worth $5 the winner would only owe $2 in taxes). While this bite sounds harsh, it could have been worse: Britain decided to set aside the rather harsh tax laws in regards to international athletes earning money on British soil.
Naturally, Olympic medalists can get far more than a medal and a cash prize. The big prizes for American athletes include deals with corporations to help them sell Wheaties and Gatorade. This income is, of course, taxed. However, I do not feel particularly upset that an athlete will pay taxes on a million dollar contract. However, the taxing of medals and Olympic prize money does bother me a bit. It also seems to bother Marco Rubio, a fellow Floridian. He has proposed a bill to waive the taxes on prizes won by US athletes in London.
I do find it rather tempting to go along with Rubio. After all, there seems to be something both odd and petty about taxing the medals and prizes won by American Olympians who are representing their country. After all, they can be seen as doing a great national service by winning medals. Doing well at the Olympics is a matter of national pride and international status and it seems problematic to take away 35% of what an athlete earns. It seems especially absurd to tax an athlete for the medal s/he wins.
That said, it can be pointed out that the Olympic athletes enjoy considerable support from the state and, as such, it makes sense for them to share a portion of their earnings. Naturally, it would make more sense if the money was put directly into the Olympic program to support athletes rather than just being taxed.
It can also be argued that although the athletes are serving their country in sport, people who serve their country in the military, public service, education and so on still pay taxes. As such, the athletes should be no more exempt from taxes than a soldier or police officer.
That said, the Olympics does seem to be something special and it does, as noted above, seem rather pretty to tax the athletes at 35%.
Having felt the cruel bite of the 35% tax myself, I am inclined to argue that at the very least the athletes should not be taxed at that rate. Rather, the prize money should be treated as normal income (which is still taxed higher than capital gains) and taxed based on the athlete’s normal rate. A medal should also not be taxed, at least not until an athlete sells it. This seems fair.
Given the anti-tax rhetoric about how taxes destroy incentives, it is interesting to note that athletes keep on competing despite that tax (and that I and others keep on working despite the fact that our bonus-instead-of-a-raise gets taxed at 35%). But, perhaps this is because we have different motivations than the 1%.