American taxpayers can now breathe a sigh of relief. After months of tense negotiations, they’ve finally gotten the tax reform that Congress thinks they want most: medals or prizes awarded during the Olympic and Paralympic games are now tax exempt.
Not willing to veer too far outside of what is now considered the norm, despite the fact that the Olympics happens every four years, Congress waited until after the games ended to make their move. The bill passed in September and President Obama signed it into law this week. But don’t worry: it’s retroactive so it applies to the 2016 games.
But if you think that gives Michael Phelps and Kevin Durant a free pass, you’d be wrong. Congress loves limits and exceptions and exemptions. The United States Appreciation for Olympians and Paralympians Act – so named since the only thing Congress loves more than limits and exceptions and exemptions is superfluous names – exempts the value of Olympic medals and prizes but only for athletes with adjusted gross income (AGI) of $1 million or less ($500,000 for those married individuals filing separately).
Prior to the new law, all Olympic medals and related prizes earned by U.S taxpayers were taxed as income for federal purposes. That includes bonuses – currently valued at $25,000 for gold, $15,000 for silver, and $10,000 for bronze – paid for winning: bonus prizes were also reportable and taxable. And it made no difference where the Olympics were located since previously, all prize money, bonus money, and endorsements were taxable in the U.S. even if they were earned thousands of miles away. The last part hasn’t changed: the U.S. still imposes tax on the worldwide income of its citizens. The difference is now that the “Olympics exemption” applies to Olympic and Paralympic athletes under the income threshold.
The new law will not affect federal income taxes on endorsement or sponsorship income earned by athletes, which remain taxable.
