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Victorious team USA athletes will return from Rio with tax bills

On Behalf of | Aug 17, 2016 | Income Taxes

Many Georgia residents look forward to the Olympic Games, but it is not just the nation’s sports fans who are cheering on Team USA in Rio de Janeiro. Athletes who earn medals also receive handsome cash prizes, and returning American athletes will arrive home to find Internal Revenue Service standing in line to receive its share. However, few Team USA members will have an Olympic tax bill as high as record-breaking swimmer Michael Phelps who will owe the IRS about $55,000 after winning five gold medals.

American athletes competing in Rio are awarded $25,000 for a gold medal, $15,000 for a silver and $10,000 for a bronze. The money is paid by the United States Olympic Committee, and it must be declared as income on the winning athletes’ 2016 personal tax returns. Many Olympians have sponsorship deals in place that pay them millions of dollars each year, and they will likely be paying income tax at the highest current rate of 39.6 percent. For these athletes, each gold medal will result in a tax bill of almost $10,000.

However, Team USA members will be able to deduct their training costs and many other expenses, and lawmakers have tried unsuccessfully in the past to make their winnings tax exempt. A bill to this effect died in the House of Representatives in 2012, but a similar legislative proposal was approved by the Senate in July and could still provide relief to Phelps and his teammates.

The rules that require athletes to pay income taxes on their winnings also apply to other types of financial windfall, and taxpayers sometimes find themselves in a difficult position after winning a contest or hitting the jackpot at a casino. Experienced tax attorneys may be able to help taxpayers in this situation to avoid some penalties by negotiating with the IRS on their behalf and working out payment plans that prevent asset seizures and wage garnishments.