|By Nicole DeRosa, CPA, MAcc, Senior Tax Manager
The price tag on victory is not cheap, at least for some. When an athlete wins a medal at the Olympics, that medal comes with significant prize money in addition to the value of the medal itself. Prize money awarded varies by medal type: $37,500 for a gold medal, $22,500 for a silver medal, and $15,000 for a bronze medal. Medals and prize money won by a team are split evenly amongst the team members.
The term “gross income” gets tossed around quite a bit when discussing taxes, but what does this mean?
For federal income tax purposes, we are to include “all income from whatever source derived” in our gross income, unless it is specifically exempted or excluded by the Internal Revenue Code. In a nutshell: prizes are taxable at their fair market value, so by winning an Olympic medal you are potentially subject to tax on the value of the medal as well as the prize money awarded. Of course, nothing is ever straightforward when it comes to taxes, and there are always exceptions to the general rule.
If you receive Olympic and Paralympic medals and the United States Olympic Committee prize money, the value of the medals and the amount of the prize money may be nontaxable. Team USA athletes with gross income not more than $1 million are able to exclude the value of the medal and prize money from their income and thus, not be subject to tax on winning an Olympic medal. This comes as great news for some, but not for all – specifically high-profile athletes who earn more than $1 million a year. Athletes who do not meet the “Victory Tax” exception will be subject to tax at ordinary rates on both the value of their Olympic medal and the prize money awarded.