American athletes who win medals at the 2020 Tokyo Olympic and Paralympic Games will not only take home prestigious honors. They’ll also pocket cash prizes. And if they aren’t earning millions of dollars a year, they’ll avoid paying federal income taxes on those prizes, too.
Per the U.S. Olympic & Paralympic Committee, Team USA Olympians and Paralympians in Tokyo will earn $37,500 for a gold medal, $22,500 for silver and $15,000 for bronze. Those medalists will benefit from the Olympians and Paralympians Act of 2016.
Signed into law by President Barack Obama after unanimously passing both the House and Senate save for one vote, the Act excludes from the calculation of adjusted gross income for federal income taxes “the value of any medal awarded in, or any prize money” received from the USOC or competition in Olympic and Paralympic Games. The Act ended the so-called “victory tax” on medalists.
The logic of the Olympics tax break is straightforward. Olympians and Paralympians are representing the United States in a form of service to their country. Many have forgone or postponed careers and earnings opportunities to hone their athletic skills and talents—and the country has reaped the benefit. Many also play sports that lack established pro leagues or other commercial opportunities. Although the Olympics tax break is widely supported, some question why other prizes awarded for socially beneficial pursuits, such as prizes for scientific achievements and teaching excellence, remain subject to taxes.
The Olympics tax break isn’t without limitation. It doesn’t apply to gross income that exceeds $1 million. It also doesn’t apply to state income taxes, which are governed by state laws.
To illustrate the tax impact for Olympians and Paralympians, consider a member of the U.S. men’s basketball team and then consider a member of another U.S. team who earns $75,000 a year.
Every player on the men’s basketball team roster is employed by an NBA team. Each earns well over $1 million a year in salary and endorsements. This means should the U.S. men’s basketball team win the gold, every player will pay taxes on the accompanying $37,500 prize. Specifically, each will pay approximately $14,000 in federal income taxes on the prize.
As to the other athlete, if his or her team wins a medal, the athlete won’t pay any federal income taxes on the medal’s prize. The country—including the U.S. Treasury—will instead tip its collective cap in gratitude.