Two new tax laws impact Olympic Medalists

Victory at the Olympics comes with more than just a medal and prestige, it also comes with a big bonus paycheck. The amount awarded varies depending on the medal. Gold winners will win $37,500 at the Winter Olympics this year, Silver medalists earn $22,500 while a Bronze wins $15,000.

The Internal Revenue Service (IRS) taxed these winnings in a manner similar to lottery winnings or work bonuses. That has recently changed.

What led to the change? Public outcry over the “victory tax” catalyzed the change. Lawmakers began crafting a new tax law that would remove tax obligations on these winnings.

What are the changes? Congress developed an exemption for Olympic winners. President Barack Obama signed the law into effect in 2016 and made it retroactive, allowing athletes from the summer Rio games to qualify.

The exemption came with a catch: high earner athletes did not qualify. Some athletes get hefty paychecks for endorsing various products. Others are just struggling to follow their dream. This specific exemption was carved out to benefit dream chasers — athletes that earned less than $1 million annually.

Even more changes are likely to result from recent tax reform. Even top earners in higher income brackets will likely see a larger award check this year. That is because President Donald Trump’s new tax law has led to a reduction in the tax placed on the top rate. Originally this rate was 39.6 percent. It is now set at 37 percent. This will translate to less tax on the winnings.

What are the lessons from these changes? The impact of evolving tax law on Olympic medalists provides an example that translates to taxpayers throughout the country. Various changes in tax law could impact your tax filings.

A failure to properly file can raise red flags with the IRS and lead to an audit. Do not let frustrations with an audit notice from the IRS lead to poor judgment. Contact an attorney to discuss your options and better ensure you legal rights are protected.

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