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And the real winner of the Olympics was... the IRS?

And the real winner of the Olympics was... the IRS?

We all know that the Internal Revenue Service is apt to tax anything that it can. Lottery participants dreaming of big payouts are often deflated when they realized how much of their winnings will be redirected to federal taxes, but ever since 1986 almost all awards and prizes are 100% subject to taxation, and a careful read of the agency's website will dash the hopes of anybody that enters a cash-rewarding contest of any kind, whether it's a beauty pageant, a television game show, or a raffle. There is something that feels a bit off, though, when you realize that the same rule applies to those who win an Olympic medal.

It's sad but true … Olympic medalists (and those who win a Nobel prize, too) are subject to IRS tax rules, though the government has allowed that those taxes only apply to Olympians who earn a million dollars per year or more. That allowance is unique to the international games.

To get a sense of how big a payout the Olympics may provide to the federal government, consider that for every gold medal won the athlete receives $37,500. Silver medalists are provided $22,500 and bronze medalists receive $15,000. In the 2021 Tokyo Games that just ended and the winter games held previously, there were a total of 1,166 gold medals awarded, and 2,941 medals in total. That's a lot of cash that the IRS would potentially collect if not for the million-dollar exemption. That came about in 2016 when Congress passed HR 5946, United States Appreciation for Olympians which meant that those athletes who are not earning millions in product endorsements will not have their cash prizes (which are paid by the U.S. Olympic Committee) diminished by tax liability.

As unfair as it may seem to have Olympic prize money reduced by federal taxes, it is fair to say that those who sign product endorsement deals will probably not miss the 37% they end up paying to the government on their $37,500 stipend. The Washington Post recently reported that those Olympic athletes lucky enough to sign product endorsement deals generally see millions of dollars come back to them.  Of course, if the Biden administration's proposed tax increases are passed, the top-marginal tax rate of 37% may go up, and that may make even the tax on $37,500 hurt a bit more.

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Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

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