As the Olympic games begin in PyeongChang, South Korea, U.S. competitors have one less thing to worry about: getting taxed on their medals or prizes.
“Medals are prizes, and all prizes are generally taxable,” says Gil Charney, director of tax law and policy analysis, The Tax Institute at H&R Block. “However, a new law passed after the summer games of 2016 in Rio de Janeiro exempts Olympic winners from taxes on the value of their medals or their cash prizes if their adjusted gross income is $1 million or less.”
This is good news for winning athletes, because besides receiving gold, silver, or bronze medals, U.S. Olympic winners collect cash prizes, which have increased for 2018:
- Gold – $37,500
- Silver – $22,500
- Bronze – $15,000
In addition, the medals themselves have value (which fluctuates):
- Gold – approximately $550 to $600
- Silver – approximately $300 to $350
- Bronze – approximately $4 to $5
While the winners won’t have to worry about federal taxes on their prizes and medals, they may face state or local taxes.
Odds and ends
The afterglow of Olympic victory may shine brighter for winners who land lucrative product endorsements. (Gymnast Gabby Douglas sells cornflakes, snowboarder Shaun White touted American Express, figure skater Michelle Kwan pitched Kraft foods and so on.)
“Successful athletes may win product endorsements, all of which are taxable as ordinary income,” says Charney.
And what about all the hard work, like travel and training, that Olympians need to get to the top?
“Taxpayers can only deduct expenses for training and travel if they are ordinary and necessary expenses required for a trade or business,” says Charney. “Olympic athletes, whose lives typically consist of constant training and competitions, would probably qualify for such treatment.”
But there’s no magic formula for determining that.
“If you are training for and participating in athletic events often enough so that you’re earning income, the activity rises to the level of a trade or business and you don’t have a full-time job, you may be considered self-employed. This could allow you to deduct business-related expenses,” says Charney.
“It would also help to win competitions (and prize money), as well as endorsements, to support the claim that the activity is truly a profession. However, winning is not a requirement, any more than being profitable is a requirement to operate a business.”
However, that’s the tax theory.
“In practice, some Olympic athletes may be sponsored by organizations that pay for their travel and training, so they may not have any out-of-pocket expenses they can deduct,” says Charney.
In addition, athletes may pay for expenses with stipends, scholarships, gifts, earnings from part-time jobs, and even proceeds from crowdfunding campaigns.
“So the tax treatment of athletes’ income and expenses will vary,” says Charney.
For those with the talent and guts to earn glory, a shot at winning may be worth any price.