Olympic Medalists and the Taxman. Make ’em Pay?
Oh, and about $10,000.
Yes, our Olympic heroes must pay income tax on both the value of the metal in the medal, and on the cash bonus that the Unites States Olympic Committee doles out for each medal won.
We’ve been rewarding our athletes with cash bonuses since the 2002 Winter Olympics. The current reward is $25,000 for Gold, $15,000 for Silver, and $10,000 for bronze. The value of the medal adds about another $600, $300, and $5 to taxable income, respectively.
A college student winning a Bronze medal, as University of Akron speedster Clayton Murphy did in the 800 meter run, may not owe much if anything on that $10,000 without other significant earned income.
On the other hand, Michael Phelps, winner of 5 Golds and 1 Silver medal in Rio 2016, will collect $140,000 in cash bonuses. His outside income, largely from endorsements, most certainly put him in the highest marginal tax bracket. Federal income tax on Phelps’ Olympic take will be right around $56,000. He may very well owe additional state income tax, depending on which state he calls home
“Federal income tax on Phelps’ Olympic take will be right around $56,000.”
Sure, Michael Phelps can afford it. He’s worth at least $50 million. So can members of the Men’s Basketball team, some of whom earn nearly $50 million a year. But many of our Olympians are struggling to make ends meet.
Some live at or below the poverty line. This year, 140 Olympic athletes started Gofundme pages to help them train and realize their Rio dreams or help their families afford to join them.
Olympic speedskater Emily Scott was featured in USA Today after she applied for food stamps in 2014. The exposure helped; her gofundme was overfunded.
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Help May be on the Way.
The tax burden on our medal-winning athletes might just go away. A bipartisan bill sponsored by Sen. John Thune (R-S.D.) and cosponsored by Sen. Chuck Schumer (D-N.Y.) would make the bonuses awarded Olympians and Paralympians tax-free. The bill (S. 2650) has passed the Senate and is expected to be considered by the House this fall. President Obama expressed support for a similar bill brought forth by Senator Marco Rubio in 2012.
I have read estimates that roughly $5 million is expected to be paid to our Olympians in medal bonuses this summer. If you assume that most of our athletes have incomes that land them in the 15% and 25% tax brackets, the cost of this bill can be guesstimated to be in the neighborhood of one million dollars or less.
Is There a Better Way?
I’m not the first person to write about the plight of the amateur athletes, but I might be among the first to suggest that repealing the tax on them might not be the best way to reward our Olympic heroes.
What kind of flag-burning #Merica hating person would suggest such a thing? Surely, I am in favor of repealing this tax, yes?
Actually, no. To find out why and read my proposed solution, please continue this story at Physician’s Money Digest (LINKED HERE) and return to leave your comments. Thanks, friends!
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Honestly I don’t know why people believe athletes should be treated any different than other citizens. While I have no problem with the cash bonuses, the tax brackets are there for a reason. Why not use them to tax appropriately instead of creating different classes of citizen?
There’s a very good reason that many athletes struggle to make ends meet — in most cases athletics provides very little value to the world beyond entertainment. And like any other kind of entertainment job, most of the spoils go to those at the top.
What’s next, tax breaks for actors?
We were thinking the same thing at the same time. See my response to Choose Better Life above. There are numerous respectable professions full of people doing a greater good than winning Gold for Olympic glory.
I absolutely respect and appreciate what our Olympians are doing, but if we don’t tax their earnings, why tax the people who work tirelessly to rehab and rehome pets at a no-kill shelter? #slipperyslope
Best,
-PoF
Hmm, not sure if this reply will nest below Mr. Tako or not. But regardless. And this also goes with POFs reply to me. In general, I agree, but they are not able to write-off their expenses like other self-employed people can. If they could, then I would agree that they should not be treated differently. And being able to do so would also then help those who don’t even medal, but did in fact put out a considerable amount of $ to make it there.
So create a Schedule OLY or ATH and allow parents and or athletes to write of their expenses. Said athlete must within some time frame compete in increasingly higher levels of competitions. Winnings can then be offset by the expenses over the years just like a business. Endorsements, free products are also included as income. If they stop competing, expenses are no longer able to be written off. If they never end up competing and write-offs were taken, that would have to be reclaimed as income. This would help all athletes and differentiate those just having fun (hobby) vs those trying to make a career out of it.
As to the value they bring, that depends on the level they are competing at. But, I’m sure the coaches that are paid, the fields that are rented, the pool time that is paid for, the gyms that collect memberships, the shoe companies, apparel companies (anyone own Nike or Under Armor Stock), Dr’s, Physical Therapists, Psychologists, Lawyers, etc, etc appreciate the $ they are being paid.
cd :O)
In past years stories about Olympic gold medalists, I was often sadly surprised about how much they and their families had sacrificed financially (and otherwise such as time sacrificed by parents) and how little the athlete “profited” from the gold medal. I know the olympics are about ideals and shouldn’t be clouded too much with secondary financial motives. But the idea of an Olympic medalist living a semi impoverished life after sacrificing so much of their youth has never sat well with me. I would like to see much more of the profit trickle down to the athletes. Not just to the medalists, but even those who finish in the top twenty or so of the world should be awarded something in my opinion.
I love your thought process and have unlimited admiration for our athletes. However, the monetary value of winning Olympic medals is more likely dwarfed by the endorsement deals that come afterward, so raising the cash payout per medal is negligible in the grand scheme of things.
Plus, if you raise the payout now by more than enough to cover taxes on the initial amount but still tax it, people will forget and the same argument to abolish taxes on these payouts will recur every few years.
Thank you for your thoughts, Julie.
I think making the medal money tax-free is a slippery slope. Certainly, there are more noble professions than Olympic competitor. What about Hospice nurses? Homeless shelter workers? People who train our Veterans to enter the workforce? You could carve out hundreds of respectable jobs that shouldn’t be taxed because we respect what they do.
Also, I don’t have any data in front of me, but I’ll be the majority of the endorsement money goes to a small sliver of athletes. A bronze or silver in a less glamorous sport is probably good for some free equipment, and maybe thousands in endorsements, but not hundreds of thousands or millions.
Best,
-PoF
Hi POF, I understand where you are coming from. However, I for one believe that our Olympian medalists deserve a tax break because they represent the best of our country in that sport and have caused our country’s spirit and flag fly high amongst the world. Yes, there are certainly more noble professions than Olympian sports but the issue here is not nobility but a nation’s pride.
Hmmm, the cash reward comes from the government, the tax goes back to the government. Seems like robbing “Peter to pay Paul” to me. If the government wants to ensure that each athlete receives X dollars net of tax, then give them a cash reward of X/(1-tax). In fact, that way you even do a little bit of redistribution. Michael Phelps pays a higher tax and keep a little bit less (%-wise) than some poor medal winner in a lesser known discipline.
Making everything tax-free would be mostly a benefit to those who already pay the highest marginal tax rate, i.e., those who make multi-millions from endorsements. So my ideal solution would be: increase the premium for each medal. Make it 10 times larger or 100 times larger (what we pay only $5 million total in rewards?????). But keep everything taxable. 🙂
… and I read right past the link you provided with your solution and realize that your proposal is actually not too different from mine, with a similar rationale, haha. Good proposal! The only thing I would change is to increase the amount not by $5,000 but $50,000. 🙂
I think the USOC could probably afford it. I’m not sure we want money to be a primary motivator, though. $25,000 (or $30,000) is better than a nominal award, but not necessarily life changing.
Remember, these games are for “amateurs” 🙂
Cheers!
-PoF
Haha, true, they are amateurs and they do what they love. But then again, if we could increase the medal count by a few more, the bragging rights would be all worth it. 🙂 A few million bucks spread over 300+ million people!
Also interesting: I didn’t know that the medal bonus came from a non-government organization. Thanks! Learned something new today!
Cheers!
ERN
Unlike most countries, the reward in the U.S. doesn’t come from the government, but from the USOC, a non-profit that is funded largely by the IOC, which is in turn funded by TV contracts and sponsors, and maybe bribes, although I doubt that happens much. “Winning” the right to host the games can be quite costly.
If they and/or parents are in fact able to write off the training expenses, outfits, shoes, goggles, etc. that would be one thing. But, when they (or parents) are spending $1000s a year when they are younger, how do you go back and recoup that?
I think a better way would be to potentially recognize there is a difference between a Michael Phelps and Clayton Murphy as far as ability to pay the taxes. On the other hand, Phelps additional taxes on his endorsements, etc already means he is paying more in taxes than he would otherwise. Why not just make it easy?!? You won’t be taxed on your Olympic bonuses – thank you for representing.
The problem I see with the higher payouts is eventually the purpose for that will be lost and people will once again want their Olympic bonuses to be tax free.
It’s tough to recoup the time, money, and energy spent as a youth, but all of that shapes who the athlete will become as a person. It could very well be a good investment. I would guess these dedicated athletes would make good employees and ambassadors.
Except Lochte. I can’t endorse Lochte. And neither can anyone else, apparently.
Cheers!
-PoF
PoF + above about Lochte! He is far too old to get away with that behavior. I would cut a twenty year old much more leniency. Their frontal lobe isn’t even fully developed yet. But for a 32 year old, being drunk is no excuse. “Over exaggerating” is a gross understatement of the fact he lied. Not a good representative of an Olympian or an American. Sponsors, please find a more deserving athlete.
A Timely post! Two things I heard on NPR the other day. First, most athletes never end up owing any taxes. They can write off their training expenses against the income and it effectively wipes out any taxes due. Second, that athletes that do end up paying taxes are making so much money from endorsements that the tax bill is a non-issue, e.g. Michael Phelps. As long as they don’t trash bathrooms in foreign countries, those costs are NOT deductible…
That being said, on it’s face, it seems unfair to tax them when they are out there busting their butts representing our country, right? Your solution is reasonable and it’s called “grossing up.” Often if you get a signing bonus to start working for a new company, you might ask them to “gross it up.” That means they add enough cash to your bonus to cover the taxes that will be due on it and you will actually net the full bonus amount. e.g. a $20,000 signing bonus grossed-up might by a check for $28,000.
Thanks for sharing – good stuff!
Thanks, Jon. NPR is intelligent enough to consider the actual impact of the proposed legislation. I read a number of articles on the topic in the media, and the obvious (to me) fact that it wouldn’t actually benefit the lower income atheletes was ignored.
“Gross up” Hadn’t heard of the term, or even the concept, really. For many physicians, particularly in areas with high state income tax, a gross up would have to be double to be effective. $40,000 to net $20,000 after taxes #firstworldproblems.
Best,
-PoF