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The recent Paris Summer Olympics were a monumental success for U.S. athletes, with many bringing home prestigious medals and cash rewards. But there’s another reason to celebrate—thanks to a 2016 tax law, most Olympic and Paralympic medalists won’t have to worry about paying federal income taxes on their winnings. This legislative win ensures that our athletes can truly enjoy the fruits of their hard work without an unexpected tax bill.
The 2016 Olympians and Paralympians Tax Break
In the past, winning an Olympic or Paralympic medal came with more than just pride—it came with a tax burden. Medals, along with the cash bonuses awarded to U.S. medalists, were previously treated like any other form of prize money or lottery winnings and taxed as ordinary income. However, in 2016, Congress enacted the United States Appreciation for Olympians and Paralympians Act, which brought significant relief to athletes by exempting their winnings from federal income tax, starting from 2015.
This tax exemption applies not only to the value of the medals themselves but also to the cash bonuses that U.S. Olympic and Paralympic athletes receive for winning. In the 2024 Paris Olympics, for instance, the U.S. awarded the following bonuses:
- $37,500 for each gold medal
- $22,500 for each silver medal
- $15,000 for each bronze medal
For gold medalists in track and field, there was an additional bonus of $50,000 from World Athletics, split evenly among relay team members. These financial rewards, paired with the tax breaks, allow athletes to keep more of what they’ve earned.
The Limits of the Exemption
While most athletes can benefit from this tax break, there is one significant exception. Athletes who earn more than $1 million annually, such as professional NBA players like LeBron James, are still required to pay federal taxes on their Olympic winnings. This stipulation ensures that the tax relief is targeted toward athletes who may not have other high-income streams. For those earning under $1 million, the law provides much-needed financial relief after years of dedication and sacrifice.
State Tax Considerations
While the federal government offers this tax relief, it’s important to remember that state income taxes are a different story. Each state has its own rules and may not provide the same exemptions as the federal government. If an athlete resides in a state that taxes prizes and income, they may still face a tax bill on their Olympic earnings. Athletes, especially those residing in states with high income tax rates, should carefully review their state’s tax laws or consult with a tax professional to understand their obligations.
Income from Endorsements and Sponsorships
Although Olympic medals and related bonuses may escape federal taxation, athletes still owe taxes on other forms of income. This includes earnings from endorsement deals, sponsorships, and salaries for professional athletes. For instance, while Olympic athletes like sprinter Gabby Thomas may not owe taxes on their medals, any income from sponsorship deals or professional leagues remains taxable at the ordinary income tax rate.
These types of earnings can often make up a significant portion of an athlete’s income, especially for high-profile athletes with lucrative endorsement deals. Planning ahead for these taxes, even if Olympic winnings are exempt, is crucial for long-term financial success.
A Win for the Next Generation
For parents and coaches nurturing future Olympians, this tax break is a win to keep in mind. The financial burden of training for the Olympics is immense, with many athletes dedicating years to preparation with little to no financial reward until they reach the podium. With the added security of knowing their medals and bonuses won’t be heavily taxed (at least at the federal level), athletes can focus more on their training and performance and less on how their financial windfall will be taxed.
However, it’s still important to create a comprehensive tax plan, especially for athletes with growing endorsement opportunities. Tax strategies like setting aside a portion of endorsement income for tax payments and exploring deductions related to training expenses can go a long way in managing an athlete’s overall tax liability.
Bottom Line for Business Owners
For business owners, especially those involved in sports management or who sponsor athletes, understanding the tax implications of Olympic winnings is essential. If you represent or are grooming a future Olympian, be sure they are aware of these tax breaks and consult a tax professional to navigate state and other income tax liabilities. It’s also important to understand how endorsement deals will affect their overall tax situation and prepare accordingly.
As the saying goes, “Victory loves preparation,” and that includes preparing for the tax implications of Olympic success!
