Prize Money Exempt From Federal Tax

By Sally P. Schreiber, J.D.

On Oct. 7, 2016, President Barack Obama signed into law the United States Appreciation for Olympians and Paralympians Act of 2016, H.R. 5946. The legislation amends Sec. 74 to exclude "the value of any medal awarded in, or any prize money received from the United States Olympic Committee on account of, competition in the Olympic Games or Paralympic Games."

The exclusion is not available if the Olympian has adjusted gross income (AGI) exceeding $1 million (excluding the awards) for the tax year. That limit is reduced to $500,000 for married taxpayers who file separate returns.

The $1 million limitation on the exclusion does not apply in calculating AGI for purposes of a number of Code sections. Specifically, Sec. 74(d)(2)(B) provides it does not apply in calculating AGI for Sec. 86, which determines taxability of Social Security benefits; Sec. 135, which allows taxpayers with incomes below certain levels to exclude income from savings bonds used to pay education expenses; Sec. 137, the adoption assistance programs exclusion for taxpayers with taxable income below certain levels; Sec. 199, the domestic production activities deduction; Sec. 219, the deduction for qualified retirement contributions; Sec. 221, the interest on education loans income limitation; Sec. 222, the qualified tuition and related expenses income limitation; and Sec. 469, the limitation on passive activity losses and credits.

The new exclusion applies to prizes and awards received after Dec. 31, 2015.

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