Taxing Olympians

I stumbled across this article yesterday on the Americans for Tax Reform website. It's about how the IRS can (in theory) tax Olympics athletes who win medals, on the basis that those medals are taxable as income. The conclusion of the post is: isn't it outrageous?!

(from Shazz Mack on Flickr)

The problem with the simple analysis is that it assumes an absolute worst-case scenario. In other words, they present a chart that shows the tax costs for gold, silver and bronze medals, assuming that the winner falls into the 35% tax bracket ($388,000 per year and above).

Now, some athletes certainly fall into this bracket. The NBA players on the men's basketball team are filthy rich, so it's hard to feel bad that the tax falls on them. A few other high profile athletes, like Ryan Lochte and Michael Phelps get big bonuses from their sponsors and aren't hard-up for money. But I suspect that many American Olympians are of modest means and probably don't pay a 35% marginal tax rate anyway.

The funny thing is that the Americans for Tax Reform article links to a Reuters article that concludes with this:
Still, [Alex Knight, a tax partner at Atlanta’s Habif, Arogeti & Wynne] doesn’t expect to see the IRS chasing after athletes for a slice of their gold. “I have to imagine that would be a public relations nightmare,” says Knight.
Taxation is a funny topic. Nobody likes to pay them, so it's easy to point to any tax, no matter how far fetched and say, "hey look, the government wants to take your money, isn't that outrageous!?" Well, sometimes it's a lot less outrageous than it may sound.