After the 112th and 113th Congress produced the two least productive legislative sessions in modern history, the 114th Congress has picked up the pace and passed legislation—which was signed into law by President Barack Obama on October 7, 2016—that will provide some welcome tax relief for Olympic and Paralympic medalists.
As Jeff noted in his August 17th blog post, the value of Olympic medals, as well as prize money won by Olympic medalists, are subject to federal income tax. See H. Rept. 114-762 (noting that "[t]he prize money awarded to U.S. athletes by the USOC, as well as the fair market value of gold, silver, and bronze medals, is includible in gross income."). However, the passage of the United States Appreciation for Olympians and Paralympians Act of 2016 (the "Act") makes a significant change to Internal Revenue Code and exempts from federal income taxation the value of any medals and prize money awarded to Olympic and Paralympic medalists.
In particular, the Act amends Section 74 of the Internal Revenue Code to state that "[g]ross income shall not include the value of any medal awarded in, or any prize money received from the United States Olympic Committee on account of, competition in the Olympic Games or Paralympic Games." For this past Olympics in Rio, the USOC awarded each Olympic athlete $25,000, $15,000, and $10,000, respectively, for each gold, silver and bronze medal, while Paralympic athletes received $5,000, $3,500 and $2,500, respectively, for each gold, silver and bronze medal. Notably, the Act provides immediate relief for any Rio medalists, as the Act expressly "appl[ies] to prizes and awards received after December 31, 2015."
The House Report noted that the Act was necessary to "provide immediate relief from unfair taxes." See H. Rept. 114-762. According to the House Report, the House Ways and Means Committee felt that "the athletes who represent the United States on the global stage at the Olympic and Paralympic games perform a valuable patriotic service," which often requires "years of personal sacrifice." Id. The Committee further felt the need for legislation because "during their years of training and preparation, many athletes representing the United States in the games earn little or no money from participation in their chosen sports and often defer pursuit of careers outside sports." Id.
The Act, however, still has important limitations. First, this new exemption "shall not apply to any taxpayer for any taxable year if the adjusted gross income (determined without regard to this subsection) of such taxpayer for such taxable year exceeds $1,000,000 (half of such amount in the case of a married individual filing a separate return)." In other words, if an Olympic medalist's adjusted gross income, prior to accounting for any Olympic medals and prize money, exceeds $500,000 (if unmarried) and $1,000,000 (if married), then the athlete cannot claim the exemption. Thus, all of the members of the gold-medal winning U.S. men's basketball team – which according to Forbes "earned a collective $257 million in salary and endorsements over the past 12 months" – probably won't be claiming this exemption.
Second, the Act only exempts Olympic medals and prize money from federal income taxes. The Act has no impact on any state income taxes that athletes may owe. However, in response to the passing of the Act, New Jersey, Minnesota and a handful of other states have introduced, or are considering introducing, similar legislation at the state level.
All told, the Congressional Budget Office estimates that this tax exemption will "reduce revenues . . . by about $3 million over the 2017-2026 period." See H. Rept. 114-762.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
