After returning from Tokyo last month, swimming phenomenon Katie Ledecky and pole-vaulting marvel Katie Nageotte have been busy showing off their gold medals from their efforts. While this is excellent news for both of these outstanding athletes, our tax lawyers have learned that one of them must face a substantial tax bill from Uncle Sam next tax season.
America’s Most Decorated Female Swimmer Likely Owes Money to IRS
Katie Ledecky may discover that an unexpected tax bill awaits her due to her winning two silver and two gold medals during Tokyo’s games. According to tax attorneys, the tally of what the Olympic swimmer likely owes is approximately $44,000. Of course, that is only an estimate and is based on the prize money attached to her medals, as well as creative corporate sponsorships.
Katie Nageotte, on the other hand, will probably have zero tax liability on her winnings, the result of a gold medal she won in the pole-vaulting competition. However, Nageotte not owing taxes likely has nothing to do with tax planning; rather, she may be able to keep 100 percent of her winnings because of special exemptions for those whose financial successes are on the modest side. Neither Ledecky nor Nageotte could be reached immediately for comment.
Intrinsic Value of Olympic Medals Versus the Prize Money They Bring
There is not much intrinsic value associated with Olympic medals, and the value they do have fluctuates from as much as $5 for a bronze medal to $700 for a gold medal. The prices typically depend on the current market value of their component metals. However, the Internal Revenue Service is not focusing on the medal’s intrinsic value. Instead, their focus is on the money awarded as a prize to the athletes from the US Olympic and Paralympic Committee. For the 2020 Tokyo games, that money is as follows:
- Gold $37,500
- Silver $22,500
- Bronze $15,000
Winnings Regarded as Income
For federal tax purposes, the winnings outlined above are considered income, according to Section 74 of the Internal Revenue Code. For athletes such as Ledecky, who is a top earner making more than $1 million annually in endorsements, the top tax rate of 37 percent must be paid on the prize money.
For certain athletes, their success determines how many endorsements they receive, as well as whether or not their income will exceed $1 million for the tax year.
Geography Doesn’t Matter to the IRS
Any IRS tax attorney would confirm that American taxpayers must report all their income, regardless of where it is earned. What dictates that the taxes must be paid in the US is the fact that the person is an American citizen. Certain countries in the world do not tax income if it is earned while the person is in a foreign country. However, American citizens must report such income, and, depending on their annual earnings, taxes may be owed on the money.
While Ledecky has probably earned enough to owe taxes, it is not yet known if Nageotte will have any tax liability. At one point, the professional pole vaulter refuted rumors about her net worth, calling them “extremely inaccurate.” Naturally, after winning gold, there could be a change in her tax status. A lot depends on the performance of each athlete when it comes to taxes. This is because their level of success during the current year’s games often determines how many endorsements they earn in the future. This, in turn, plays a role in whether or not their income remains steady or skyrockets to a higher tax bracket.