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.