The 2012 London Olympics are rapidly approaching their conclusion and they have provided quite a thrill to viewers in California and around the world. From unexpected triumph to heartbreaking disappointment, the Olympics present a compelling and unfiltered view of some of the human emotions that come out during athletic competition.
As is often the case, U.S. athletes have amassed an impressive medal count in a variety of sports, including the ever-popular swimming and gymnastics events. But when the competitors return to our shores, they will have more than cheers and congratulations waiting for them: They will eventually have a tax bill sitting on their doorstep.
The U.S. Olympic Committee provides an honorarium to American athletes who reach the podium in their events. Bronze medal winners receive $10,000, silver garners $15,000 and gold brings home a hefty $25,000. Those payments are considered income within the definitions of the Tax Code, as are the medals themselves. Although the value of a bronze medal is negligible, the gold and silver medals are each worth hundreds of dollars.
Depending on an Olympic athlete's total income for the year, their winnings from the Summer Games could be taxed at the maximum rate of 35 percent. Senator Marco Rubio has introduced a bill that would exempt from taxation any prize money and medals won by U.S. Olympians.
The current tax on an athlete's winnings highlights the broad definition of income described in the Tax Code and developed by a number of court cases. Sometimes taxpayers may not know that something is taxable until they receive a notice from the IRS demanding payment.
Source: CBS News, "Fla. Sen. Rubio introduces bill to make Olympic prizes tax-exempt," Sara Dover, August 1, 2012.
• The law surrounding what constitutes taxable income is very complex. If you would like more information on my practice, please visit my IRS tax audit page.