Last night the United States Women’s National Soccer Team made all of America proud and won their third World Cup (this makes the United States the only team to have won three World Cups). First, congratulations are in order. Second, celebrations should be had. Third, the members of the championship team may want to contact their financial advisors and tax attorneys. Did you know that the IRS taxes athletes for their winnings? And I don’t just mean any bonuses they receive as a result of their winnings, I mean that the athletes are taxed on any prizes or medals they win as well.
For example, in 2015, Tom Brady and the New England Patriots won the Super Bowl. Tom was named the Super Bowl MVP and was given a 2015 Chevrolet Colorado worth around $35,000. The truck was considered a taxable prize under Section 74 of the Internal Revenue Code. When it was all said and done, Tom likely paid $13,500 in taxes on the “prize” he won for being named Super Bowl MVP.
While many people may realize that an athlete, or any competitor, will be taxed for receiving a car as a prize, not many people realize that you can also be taxed on any medals or trophies you receive. The amount charged in taxes is dependent on the value of the trophy, which can range dramatically. For example, the BCS Championship Trophy is worth around $30,000, that is quite a tax bill. Clearly it’s important to assess the value of your winnings after taking home a championship to make sure there are no issues when that yearly tax bill comes do.
It’s also important to note that these medals and trophies could also be considered income for purposes of marital property or child support evaluations. Often times people may not think of their winnings as income, but the IRS, unsurprisingly, certainly does. Although there has been some movement in Congress to eliminate tax liabilities for certain competitors, nothing has been done as of yet, so keep this in mind if you happen to win a competition, your prize may cost you more than simply the blood, sweat, and time you poured into practice.
Authored by Brady McAninch