Individual Income Insights: Many U.S. Olympians Also Set to Win with Individual Income Tax Savings from Medals


 

Pyeonchang Olympic Medals

“We all have dreams. But in order to make dreams come into reality, it takes an awful lot of determination, dedication, self-discipline, and effort,” said famous Olympian Jesse Owens. In the most recent Olympic Games in Pyeonchang, South Korea, many U.S. Olympians realized their dreams, as the United States finished fourth in the medal count with the Americans bringing home a total of 23. Luckily for these winners, the federal government and most states give favorable individual income tax treatment for the prizes these athletes receive.

On Oct. 11, 2016, President Obama signed Pub. L. No. 114-239, which provided tax relief for our U.S. Olympic medal winners. Under this law, any medals awarded and prize money received as a result of Olympic competitions are excluded from the athlete’s gross income. However, the most high-profile athletes competing in the games may not receive this benefit, as the exclusion does not apply if the competitor’s taxable income exceeds $1,000,000 for the tax year.

Most, but not all, states conform to the federal tax treatment for Olympic awards. Since the federal law was enacted on Oct. 11, 2016, any states that conform to a version of the Internal Revenue Code prior to that date do not include this exclusion, unless they specifically adopt the provision. In this case, most states have one way or the other conformed to this code section. States that have not include California, Iowa, and Kentucky.

A few states have gone a little further than just relying on federal conformity provisions to provide this tax break. Colorado and Maryland have enacted specific state legislation mirroring the federal statute. This ensures that these states will offer this exclusion to Olympic champions on the state-level regardless of whether the federal law changes.

So how much money does this actually save the athletes? The answer varies depending on the prize and the athlete’s state of residence, but to give you an idea let’s take a look at what these Olympians receive for their accomplishments. The values of the medals themselves are roughly $600 for gold, $300 for silver, and only $3 for bronze. So in terms of the medals, the tax saving don’t add up to too much. However, the United States Olympic Committee also grant monetary rewards for medaling, which are covered by this exclusion. These amounts are $37,500 for gold, $22,500 for silver, and $15,000 for bronze, which may result in a great deal more in tax savings.

Right now these Olympic medalists are celebrating their victories, but come next April they very well may be celebrating their tax exclusions.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should federal and state governments provide tax benefits for Olympic prizes?

Get a free trial to Bloomberg Tax: State, a comprehensive research service that provides deep analysis and time-saving practice tools to help practitioners make well-informed decisions.