Individual Income Tax Insights: To The Victor Go The Taxes?

 “It’s all income, unless it isn’t.” The professor of my introduction to tax law class said these words multiple times throughout the year. The lesson was that anything can be income, unless it is statutorily excluded from the definition. It doesn’t matter what it is, if you receive a benefit or an enrichment, technically that’s income, and the state might tax it.  

That is why I wasn’t surprised that one of the biggest stories coming out of the Summer Olympics is the tax treatment of medal winners. Aside from being a global sporting event where the world’s best athletes compete for their country, the Summer Games provides the perfect illustration that “it’s all income, unless it isn’t.”  

Both the federal government, and some states, will be taxing Olympians on the cash payments they receive for winning, according to Cash is very clearly income, even though some might feel an exception should be made for Olympic winners.  

However, it’s not just prize money that is subject to the income tax, it is the actual Olympic medals as well. Both the federal government, and some states, will be taxing Olympians on their hard won hardware this year, according to same article. Unless it is specifically exempted by statute, both the medals and the money are income.  

Exempting Olympic winnings is just what several legislators across the country are trying to do. This summer, bills have been proposed in New York, New Jersey, and Minnesota to exempt prize money and the value of medals from state income taxes. There is also federal legislation pending to exempt Olympic winnings from the federal income tax.  

For those Olympians lucky enough to live in Indiana, state income taxes are a moot point. Indiana, as a result of its citizen’s previous Olympic successes, already exempts Olympic winnings from its income tax, as reported by The Northwest Indiana Times.  

However, not everyone shares the view that Olympic medals and prize money should be exempt from tax. In California’s legislature, an Olympic exemption bill never made it out of committee, as reported by Laura Mahoney in Bloomberg BNA’s Weekly State Tax Report. Twice before, California has had legislation proposed to exempt Olympic spoils from income tax; however both previous bills met similar fates, according to the article.

The Summer Olympics, and its winter cousin, come up once every four years. Each new games bring up the same old questions, “should this be income?” For now it is…until it isn’t.

 *Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Should Olympic athletes have an income tax exemption for their medals and prize money?

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