The Tax Code Exclusion for the .00039 Percent

White House Press Secretary, Jay Carney, told reporters today that President Obama would support a bill to exempt US olympic athletes from paying income taxes on olympic prize money.  He was referring to a bill introduced by Sen. Marco Rubio (R-FL) last week.

Well, the President believes that we should support efforts, like I think the bill you’re referencing, to ensure that we are doing everything we can to honor and support our Olympic athletes who have volunteered to represent our nation at the Olympic Games. So he supports that bill. If it were to get to his desk, he would support it.

~ Press Secretary Jay Carney

Tax Girl points out that bills like this further complicate the tax code in an era when we should be more interested in simplifying.  It seems this was nothing more than a strategic election-year political statement, as it doesn’t make sense to carve out a tax help exception for such a small segment of society.  How small of a segment?  Well, we sent 529 athletes to the London Games this year.  And as of June 8, 2012, the IRS had received 137,200,000 individual tax returns for the 2012 filing season.  I’m all about increasing tax relief opportunities but, conservatively speaking, (since many return filers are still under extension) we’re talking about .00039 percent of taxpayers benefiting from such an exclusion!

Olympic Medal Tax Rates

image via en.wikipedia.org

US citizens are generally required to pay taxes on their worldwide income, regardless of where they are living.  If you don’t believe me, you can read all about it in IRS Publication 54 “Tax Guide for U.S. Citizens and Resident Aliens Living Abroad.”  So the olympic medals and prize money obtained by American athletes — you guessed it: taxable.

The people at Americans for Tax Reform calculated the tax on each prize level:

  • Bronze – tax bill is $3,502 on prize of $10,000
  • Silver – tax bill is $5,385 on prize of $15,000
  • Gold – tax bill is $8,986 on prize of $25,000

And that’s just the tax on the prize money associated with the medal.  If our olympians really want to do things correctly, they will have to pay tax on the medal itself too.

Some think that our “amateur” athletes should get tax relief similar to that which we extend to our military personnel.  They do represent the United States, but I’m not sure the public policy reasons are quite the same.