The Olympic taxman cometh

“Our Olympic ath­letes face a com­pet­i­tive dis­ad­van­tage that has noth­ing to do with sports.”

— Amer­i­cans for Tax Reform

“We can all agree that these Olympians who ded­i­cate their lives to ath­letic excel­lence should not be pun­ished when they achieve it.”

— Sen. Marco Rubio

I’ll admit it — I have a prob­lem. I’m addicted to the Olympics.

Since I was a kid, I’ve always loved the inter­na­tional com­pe­ti­tion of the Olympic games. As a child, I used the Olympics to learn where other coun­tries were and what their flags looked like. It led to a pas­sion for col­lect­ing those flags and I now have more than 150 4-inch by 6-inch world flags resid­ing in my court­room. Sev­eral Olympic games back, I built an Olympic medal board to the dis­play the flags and medal totals of the top five nations and now when the games come around it sits in the court­room as a great con­ver­sa­tion piece and edu­ca­tional tool.

As of mid­week, the Lon­don Olympics had already pro­duced its share of great sto­ries — the American’s women’s gym­nas­tics team win­ning a gold medal, Michael Phelps becom­ing the all-time indi­vid­ual medal leader and Kim Rhode hit­ting 99 of 100 tar­gets to win gold for the United States in skeet shoot­ing. The games had also gen­er­ated their share of con­tro­versy from dop­ing alle­ga­tions to the dis­qual­i­fi­ca­tion of four bad­minton teams for attempt­ing to throw matches.

On Wednes­day, a very non-athletic issue arose. The group Amer­i­cans for Tax Reform, led by Grover Nordquist and most known for their anti-tax pledge, noted that all Amer­i­can Olympic medal win­ners are given a cash prize in addi­tion to their medals and that Amer­i­can ath­letes are among the very few who would be expected to pay taxes on those cash prizes upon return­ing home.

Gold medal­ists are awarded $25,000, sil­ver medal­ists $15,000 and bronze medal­ists $10,000 by the United States Olympic Com­mit­tee. Amer­i­cans for Tax Reform added those amounts to what they esti­mated to be the value of the medals them­selves ($5 to $675) and then esti­mated that the tax ath­letes would have to pay would range from $3,502 on bronze medals to $8,986 on gold medals.

The under­ly­ing issue relates to what hap­pens to money that Amer­i­cans earn over­seas. Amer­i­cans for Tax Reform notes that the United States is among a select num­ber of coun­tries that require its cit­i­zens to pay domes­tic tax on for­eign earn­ings. In essence, an Amer­i­can cor­po­ra­tion doing busi­ness in, say, Aus­tralia, would be required to pay taxes to the Aus­tralian gov­ern­ment on the money the cor­po­ra­tion earned in Aus­tralia. If the cor­po­ra­tion then brought that money back to the United States, it would be required to pay the dif­fer­ence between its U.S. tax rate and the tax already paid in the land down under.

As a side note, the math used by Amer­i­cans for Tax Reform reflected the worst pos­si­ble sit­u­a­tion for a medal win­ner. The esti­mated tax to be paid is based on the U.S.’s high­est tax bracket of 35 per­cent. To get there, a medal­ist would have to have total 2012 income that topped $388,351 and then would pay that 35 per­cent only on the income that exceeded that amount. But many ath­letes, like Phelps and Ryan Lochte who have endorse­ment deals, would sig­nif­i­cantly top that income level.

Sev­eral elected rep­re­sen­ta­tives jumped on the story quickly. Unfor­tu­nately for Amer­i­cans for Tax Reform, they did so with­out address­ing the under­ly­ing issue of tax­a­tion on for­eign earn­ings. Sen­a­tor Marco Rubio of Florida imme­di­ately pro­posed leg­is­la­tion to exempt Olympic win­nings from tax­a­tion under the I.R.S. code.

Con­sid­er­ing the rel­a­tively small num­ber of Olympic medal­ists and the pride they bring to a nation, exempt­ing their mod­est win­nings from tax­a­tion is cer­tainly not a highly con­tro­ver­sial issue. Whether the pro­posal brings dis­cus­sion on the broader issue of whether for­eign earn­ings should be tax­able both domes­ti­cally and in the nation in which they are earned, remains to be seen.

David Hej­manowski is a mag­is­trate and court admin­is­tra­tor at the Delaware County Juve­nile Court and a for­mer assis­tant pros­e­cut­ing attorney.

Posted by Dave Hejmanowski on Aug 2 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.