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Olympians' winnings would be tax-exempt under proposed law

Florida Senator Marco Rubio has recently introduced legislation that would provide another change to the nation's Tax Code. But unlike some of the broad, sweeping changes legislators have debated in recent months and which will constitute a significant portion of the political discourse during this fall's campaigns, Sen. Rubio's proposal is narrow and designed to apply to a rarified group of Americans: Olympic athletes who medal in their events.

While prizes and money won by athletes in the U.S. are considered ordinary income under the Tax Code, our tax laws, unlike those of some countries, also include prizes awarded abroad. Successful Olympic athletes can take home more than just medals. The U.S. Olympic Committee bestows cash awards on U.S. medal winners: Gold receives $25,000, silver takes $15,000 and bronze merits $10,000.

The Internal Revenue Service not only taxes this honorarium, but also imposes a tax on the value of the medal itself. Current gold and silver prices make those emblems of victory worth hundreds of dollars, while the underlying value of bronze is less than $5. Depending on an Olympic athlete's other sources of income and his or her success at the Summer Games, the IRS could assess a tax bill of thousands of dollars or more.

Sen. Rubio has criticized the tax system as one that "punishes success," and his bill would make any medals and prize money won by U.S. athletes at the Olympics free from taxation. While it is a small example, this piece of legislation shows the ever-changing nature of the tax laws, with which people must remain current if they are not to run afoul of the IRS.

Source: CBS News, "Fla. Sen. Rubio introduces bill to make Olympic prizes tax-exempt," Sara Dover, August 1, 2012.

• Penalties for non-compliance with tax laws can be substantial. If you would like more information about our firm, please visit our Florida civil tax controversy page.