Why US athletes no longer have to pay a 'victory tax' for Olympic medals

Congress passed a bill Thursday that would exempt Olympic athletes from paying taxes for their medals and cash prizes, eliminating the so-called "victory tax."

US Olympic winners usually come home with a shiny medal and cash prizes, but they also find a hefty tax bill awaiting their return.

But the Olympic "victory tax" may soon be eliminated.

Congress passed a bill on Thursday that would exempt American athletes from paying taxes on their Olympic prizes.

“Our Olympian and Paralympic athletes should be worried about breaking world records — not breaking the bank— when they earn a medal," Sen. Chuck Schumer (D) of New York said in a statement. "After a successful and hard-fought victory, it's just not right for the U.S. to welcome these athletes home with a tax on that victory."

American Olympic medal winners are also awarded cash prizes: $25,000 for gold, $15,000 for silver, and $10,000 for bronze. The medals themselves also have cash value, with gold fetching around $600, silver $300, while bronze has little intrinsic value, according to the Associated Press. Olympic prizes are taxed, just as lottery or game show winnings are taxed, because the money is deemed by the IRS as an earned income.

Currently, the tax rates can be steep for athletes. As reported by Marketplace in August, the amount is based on tax rates for income earned abroad. Gold medalists can be taxed up to $9,900 per medal, silver medalists $5,940 per medal, and bronze medalists $3,960 per medal. On top of that, they can be taxed on the value of the medal itself. Taxes for a gold medal is $564 and silver $305.

The tax exemption bill Congress passed is seen as a way to help US athletes keep more of their Olympic earnings, especially in sports where many have documented their financial struggles just to get to the international stage, as The Guardian reports. American athletes are also awarded less than some other countries and receive relatively meager pay, the Washington Post notes. President Barack Obama stated his support for the idea when it was brought up in 2012.

That means Obama is likely to sign the bill into law. But it won't help all athletes, just those whose biggest windfall tends to come from winning in games.

For a few top athletes, their biggest source of income is from multimillion-dollar sponsorship deals with companies. For example, Michael Phelps received a $1 million bonus from Speedo after winning eight gold medals in Beijing in 2008; And Team USA basketball star Kevin Durant has endorsements of $36 million for the year ending June 2016, according to Money.

The bill passed Congress still allows taxes on the athletes who earn more than $1 million a year, which would include athletes such as Phelps. 

Athletes in less high-profile sports generally get smaller amounts of sponsorship funding. As reported in CNN in July, Olympic fencer Ibtihaj Muhammad gets by with a small stipend from the US Olympics Committee (USOC,) endorsements from Visa and Dick’s Sporting Goods, and she started her own fashion line.

But even with that support, she launched a crowdfunding campaign to bring her family to Rio. 

For other athletes, the money cobbled together through small sponsorships is not enough to support their lives outside of basic living and training expenses. As The Washington Post reported in July, more than 100 athletes started GoFundMe pages to ask for donations for new gear, living expenses or for sending family members to Rio to watch them compete. Dick’s Sporting Goods launched a program to hire aspiring Olympians to work in their stores.

In the US, the US Olympic Committee (USOC) is responsible for training, entering, and funding US teams going to the Olympics, Paralympics, and other international competitions. Unlike in other countries, the USOC is not funded by the federal government and relies on donations and sponsors. The USOC had 558 athletes in the 2016 Rio Olympics.

"I wish we could support everybody," USOC CEO Scott Blackmun told USA TODAY in a 2013 interview. "But the truth is, our job is to put as many Americans that we can on the podium so we try to prioritize our support. … With our limited resources, there's no way we could support every athlete who aspires to be an Olympian."

But some see the USOC as part of the problem, and say the tax exemption is little more than a band-aid. 

“If Congress wants to provide financial assistance to truly struggling athletes, it should just man up and establish some sort of fund aimed at helping those who need it most,” Howard Gleckman, senior fellow at the Tax Policy Center, argued in August in a blog republished by The Christian Science Monitor.  “Despite what Congress wants you to believe, this bill would do almost nothing to help them.”

Gleckman saw the act as “a way for politicians to use the tax code to make it appear they are supporting deserving Olympians when they really are not.”

According to a Washington Post investigation earlier this year, an USOC official concede that most US Olympic athletes do not earn enough from their sports to make a living. But the article also points out that while the athletes receive low stipends, the USOC executives walk away with first-class perks and lucrative paychecks. For example, USA Swimming Executive Director Chuck Wielgus makes $854,000 and the national swim team director earns $346,000 while their swimmers competing in Rio have monthly stipends capped at $42,000 per year.

“There are limited resources for sure. You don’t want to take so much money away from the USOC . . . that they can’t do their jobs,” Eli Bremer, a former Olympic modern pentathlete who competed in the 2008 Summer Games, told the Washington Post. “But you don’t want them getting fat and happy while the athletes live in poverty. I believe there is a better balance.”

Some who study the industry want to see bigger reforms that address the gap in pay and provide more support to athletes. Andrew Zimbalist, a professor of economics at Smith College, says that the proposed tax exemptions don't address the problem adequately.

“It is not equitable for these executives to get these high salaries and for these athletes to get next to nothing,” Prof. Zimbalist tells The Christian Science Monitor in a phone interview. “I think the system needs more serious reform than just not taxing $25,000 and a medal.”