Skip to content

Proposal to Exempt Olympians’ Prize Money from Taxation: Good Politics, Wrong Solution

2 min readBy: Kyle Pomerleau

According to an analysis by the Americans for Tax Reform, U.S. Olympic gold medal winners may have to pay up to $9,900 to the IRS. They calculate this by assuming gold medalists already have adjusted gross income of at least $400,000 and multiplying 39.6 percent by the cash prize of $25,000. They also show the approximate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. bill of all other medalists and income tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. s.

U.S. Tax Rates per Bracket

Max. Tax Liability on Gold Medal Prize of $25,000

Max. Tax Liability on Silver Medal Prize of $15,000

Max. Tax Liability on Bronze Medal Prize of $10,000

39.60%

$9,900

$5,940

$3,960

35%

$8,750

$5,250

$3,500

33%

$8,250

$4,950

$3,300

28%

$7,000

$4,200

$2,800

25%

$6,250

$3,750

$2,500

15%

$3,750

$2,250

$1,500

10%

$2,500

$1,500

$1,000

Source: Americans for Tax Reform

In the same week as this analysis, Congressman Blake Farenthold (R-TX) proposed a bill that would effectively exempt Olympic winnings from taxation. He feels that this is a “needless tax,” and “we need a fairer system for all, and eliminating this unnecessary tax burden on our athletes is a good way to start.”

While it is true that we do need a fairer tax system and that this makes good politics in the midst of our patriotic support of our athletes, this bill would do better to address the fundamental reason why our tax code is unfair.

The United States is currently one of the only countries in the world that taxes all income earned, no matter where it is earned. Whether you are an Olympic athlete, a teacher, or a banker, you have to pay taxes to the IRS on income earned in a foreign country. Having to pay taxes on foreign income is unfair. You are essentially paying for services even though you are not benefitting from them. Whether you should be taxed on your income in a foreign country is entirely up to the tax authorities in that country and shouldn’t be up to the IRS. Excluding Olympic winnings, but still requiring others to pay taxes on their foreign income is definitely not any better.

In addition, Representative Farenthold makes the tax system more complicated in a sense. The current means by which you pay taxes abroad requires you to file taxes multiple times (once to the country in which you live and again to the United States) and calculate your foreign tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. . Rather than moving in the right direction by exempting all foreign-based income, he is proposes to add another exclusion to an already complex tax code.

Share