Guess who was among the first to welcome our Olympic athletes back home from Rio? None other than the IRS.
For U.S. athletes, winning an Olympic medal comes with pride, glory – and a hefty federal tax bill.
According to TIME, Michael Phelps owes over $55,000 in federal income taxes for his five gold and one silver medals earned at the recently concluded summer games. That’s a whopping amount even for someone whose net worth is $55 million.
The U.S. is one of few countries which does not provide government funding for their Olympians. Most Olympic athletes are not as fortunate as Phelps because they lack endorsement deals and rely on small stipends from the USOC and income from day jobs. Some even maintain their amateur status and are college students who rely family support and scholarships.
So how did the IRS get into taxing America’s Olympic medal winners?
It started in 1992 when the U.S. Olympic Committee allowed professional athletes to compete for Team USA in the Barcelona games. USOC also established cash prizes which paid $25,000 for gold, $15,000 for silver and $10,000 for bronze medals.
With that in mind, America’s Olympic officials decided that our country was already competing against professionals from other nations, so why not find a way to let our best, amateur or professional, represent us.
“Like any prize winner, from a jackpot hitter to a Nobel Prize recipient, the athletes are taxed because Olympic medals and cash bonuses are considered income,” said Steven Gill, associate professor of accounting at San Diego State University.
The tipping point came in the 1988 Seoul games when the Russian (Soviet) professional basketball players beat our amateurs for gold.
So “The Dream Team” led by professional basketball players—Michael Jordan, John Stockton and Magic Johnson—-went to Barcelona in 1992 and Team USA again stood atop the awards podium.
At the time, some Americans balked at using professionals. They pointed to our 1960 and 1980 teams which defeated the heavily favored Russian hockey teams on their way to gold medals.
The USOC decision 24 years ago paid off.
The 2016 Rio Games will go down as the best ever for Americans who won 120 medals. That beats the old record of 110 medals at the Beijing Olympics eight years ago. In 2008, the “Victory Tax” take was $5.3 million. This year’s total revenue to the IRS should be higher.
The maximum possible “victory tax” on the bonus for each gold medal, using the top tax rate of 39.6% for the nation’s highest earners, is $9,900, according to Americans for Tax Reform. For silver, it’s $5,940, and for bronze it’s $3,960. Olympians in lower tax brackets would owe less.
Athletes can offset their potential tax hit with the hundreds of thousands of dollars in expenses they’ve likely racked up for training and traveling, if they treat their sport as a profession. Hopefully, they keep good records and have a sharp tax accountant.
For example, in the last Olympics, the New York Times reported that Missy Franklin’s parents spent $100,000 a year on her swimming expenses.
Even the medals themselves are taxed, but the taxable base is low. According to MONEY’s estimates, the scrap value of a gold medal is about $501. Silver medals have even less value, about $300, and bronze medals have the lowest value.
The bottom line is “Victory Tax” should be repealed. The IRS might have a case for keeping it if our government was funding our Olympians, but it should not. Having the IRS in the mix is a big enough headache.
Don C. Brunell is a business analyst, writer and columnist. He retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at theBrunells@msn.com.