By Nathan Vinson, attorney
English, Lucas, Priest and Owsley, LLP
An interesting question popped up in social media during the 2016 Summer Olympics: will U.S. athletes taking home a medal be taxed on the value of it – particularly those who win the gold?
News accounts have confirmed that yes, U.S. medal-winning athletes will be taxed, but not on the value of the medal itself. It’s the cash prize that comes with each medal that is taxed.
Swimmer Michael Phelps, who has broken all kinds of records this year, may owe the government $55,000 in taxes for the cash prizes that go along with his five gold medals and one silver medal, reports USA Today. Each gold medal is accompanied by a check for $25,000, while each silver earns $15,000 and each bronze $10,000. If Phelps is taxed at the highest income tax rate of 39.6 percent, he would owe around $55,000, the newspaper reports. I checked the math, and yes, that’s about right.
It seems a little unfair to have worked so hard for something so few can achieve and then have the government take a bite out of it, but as I think we all know, the government always wants its share.
Win money on Jeopardy for superior intelligence and knowledge? It’s taxed.
Win a car on Price is Right due to your excellent knowledge of manufacturer’s suggested retail prices? Taxed.
Take home consolation prizes in a beauty pageant? Taxed.
Your salary? As you well know, taxed.
Many assume Olympic athletes are wealthy. That may be true of some, but that’s not commonplace. Wired magazine recently took a look at Olympic athletes’ earnings, and notes that while athletes are in training or working towards their dreams, it can be very difficult to balance the expenses of training with making a living. The article also notes that Olympic athletes often have little real world work experience on which to build a career, so when their Olympic aspirations are over, it’s not easy to find a job. That’s why getting that college degree while pursuing an athletic goal is important; it gives the person next steps in life should something happen that injures them and renders them unable to compete. Like this guy (at least for a while, anyway).
For star Olympic athletes, there’s something much more valuable they have than a medal, and that’s earning potential. All professional athletes have a few years – maybe a decade or more – to make the most money they possibly can before their bodies decide to help them retire from active competition and the punishing schedule of regular practices.
Athletes can earn lucrative endorsement deals for products. Michael Phelps saw a deal with Kellogg vanish in 2009 for conduct that tarnished his image. Other athletes – Tiger Woods, for example – have had similar issues, and it’s destroyed their livelihood temporarily. Phelps is back in the marketing game after an incredible performance at the Olympics this year.
Some famous athletes have leveraged their Olympic careers into a lifetime of rewarding, fulfilling work. Scott Hamilton, Olympic ice skater, is a great example. He’s had a lifetime of speaking engagements, television commentary and other similar work centered around and built on his athletic career. But what about all of the mid-level athletes who don’t become household names? That’s who may struggle to put together a career as they move through life.
So when those winnings come along, it’s best for athletes to remember that they will be taxed on those winnings, and that the next paycheck to pay those taxes may not be coming along quickly. My advice to the athletes would be to figure out what you may owe, and quickly set aside the potential taxes through at least April 2017. Setting aside 40 percent would be the way to go, just to ensure you’ll have enough.
Athletes are best served by keeping a good portion of their earnings tucked aside for when they can’t win prizes or games. A low tax bill may sound great, but when it’s because you aren’t making any money, it’s not good news.