Like the rest of the world I have been glued to the TV watching the Olympics this week. Did you know that with each medal there is a cash award associated with it? $25,000 for gold, $15,000 for silver and $10,000 for bronze. Did you know that prize money is taxable? Yep! So that means that Michael Phelps earned $111,250 in the past week and Missy Franklin earned $72,500 (assuming they have to share the cash for the gold on the relays) and will have to pay income tax on the income.
In the US, taxpayers are taxed on their worldwide income. That means income earned anywhere in the world (including the Olympics) would be subject to federal income tax reporting. But wait it seems that a bill has been introduced to exempt American Olympians who win medals from paying federal income tax on their winnings.
I’m not sure I agree with the proposed bill. I love the Olympics as much as the next guy but really should we be making the tax code more complicated for such a small percentage of the population? I’d rather see our military be tax exempt after all their salaries are paid from taxes collected so it just seems goofy to me to collect taxes from them and then turn around and pay them with their own withholdings but then the tax code doesn’t really make sense to me. The good news is I don’t have to like the tax code or even make sense out of it in order to help client’s follow the rules!