Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
By Ryan Prete
Athletes will somewhat skate by federal and state tax authorities as they go for the gold in the 2018 Winter Olympics, which start Feb. 9 in PyeongChang, South Korea.
Olympians risking it all for the medal—including alpine ski racers Lindsey Vonn and Mikaela Shiffrin, snowboarder Shaun White, and members of the U.S. men’s and women’s hockey teams—can thank a President Obama-era federal law for saving potentially tens of thousands in federal and state income taxes.
The law enacted in 2016, which ended “victory taxes,” exempts prize money and medals from Olympians’ gross income, which can translate to serious savings for Olympic athletes. The law doesn’t apply to Olympians with gross income exceeding $1 million, or $500,000 for married Olympians.
For this year’s Olympics, the U.S. Olympic Committee will pay Americans $37,500 for earning gold, $22,500 for earning silver, and $15,000 for earning bronze.
Gold medals aren’t nearly as valuable as cash winnings. According to the National Olympic Committee, while a gold medal weighs 586 grams, it contains only 6 grams of gold—the other 580 grams are actually silver. With gold currently trading around $1,315 an ounce and silver at roughly $16.50 an ounce, the medal would have a value of around $620.
An Olympian who earns gold and files in the top federal tax bracket of 37 percent would save $13,875 in federal income taxes on their cash prize. Olympians would save $8,325 in taxes on the silver medal cash prize and $5,550 in taxes on the bronze medal cash prize.
An athlete in the top tax bracket would save about $229 in federal income taxes on a gold medal.
Lucky for Olympians, the federal law also means the exemptions apply for state income taxes—in most states.
Jared Walczak, a senior policy analyst with the Center for State Tax Policy at the Washington, D.C.-based Tax Foundation, told Bloomberg Tax that because the majority of states begin their income tax calculations with either federal adjusted gross income or federal taxable income, they also exempt the Olympic winnings.
Walczak said the six states that base their income tax calculations instead on state gross income, and therefore do tax the prize winnings, are:
Olympians could still pay state income taxes on prize winnings received in the U.S. for events outside the Olympics, according to Sean Packard, tax director at Octagon Financial Services.
“Olympians are independent contractors, so they pay taxes based on where they earn their money, per event,” Packard told Bloomberg Tax.
This is a different tax philosophy than those faced by athletes playing in the National Football League, Major League Baseball, National Basketball Association, or National Hockey League.
“Team sports players who are employed by their teams pay based on where they are,” Packard said.
In these leagues, players are hit by jock taxes calculated by the amount of “duty days” a player contributes to “income-related work” in any state that administers an income tax.
For Olympians, tax burdens are on an event-by-event basis. So if Shaun White travels from his home in California to Colorado to compete in a snowboarding tournament, he would pay Colorado’s 4.63 percent income tax rate on winnings earned while there.
If White resided in Colorado for more than half the days a year (183), he would be subject to its state income tax on the entirety of his earnings, Packard said.
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