Prize money, bonuses: athletes facing the tax challenge

With the Paris Olympic and Paralympic Games now over, many athletes will soon face another challenge: filing their taxes. After their victories, they will face the complexity of tax filings, particularly regarding the income they earned during and after the competition.

Taxable income, applicable rates, tax brackets, smoothing of exceptional income, exemptions – there is a significant lack of understanding about the tax system for athletes.

Additionally, unlike internationally renowned athletes who receive close follow-up, less high-profile athletes often escape attention from the tax authorities and sports federations. They also do not benefit from support from their federations or the authorities, which can lead to filing errors.

To assist athletes with this tax challenge, our expert shares three essential tax tips.
 

Residence: An essential factor

The tax system for professional athletes, who often participate in international competitions and training camps, mainly depends on their tax residency. Indeed, tax residency determines how their income is taxed.

Declare income in France or abroad?

If an athlete is considered a tax resident in France, they must declare all their worldwide income. However, if they are not a tax resident, only income from French sources needs to be declared.

What criteria define tax residency in France?

The French General Tax Code, particularly Article 4b, establishes three criteria for determining an individual's tax residency.
An athlete is considered a tax resident in France if they meet any of the following conditions:

• The main home or place of residence
• The primary professional activity
• The center of their economic interests

Generally, the "main home" criterion is sufficient to establish tax residency in France. Additionally, for the main place of residence, it is not necessary to reside for more than 183 days a year in France; it simply needs to be where they spend most of their time.

Obligations for French tax residents

Once tax residency in France is established, the athlete must declare all their worldwide income. However, there are provisions to avoid double taxation, such as the ability to offset foreign taxes paid with tax credits. However, this requires significant administrative and tax procedures. 

Self-employed athletes: How to declare income?

Self-employed athletes, who are essentially entrepreneurs, must pay taxes based on the types of income they receive. Their professional status is a key factor in this equation, and choosing the right status is crucial to optimize their taxation.

What status for a self-employed athlete?

For a salaried athlete, such as a football player under contract with a club, the hierarchical relationship simplifies the declaration of salary income.
However, for a self-employed athlete (such as a skier or figure skater), the situation is more complex. Most young athletes who start earning money opt for the micro-entrepreneur status, which allows them to invoice their services in a simplified manner.

Diversity of income and tax complexity

A top-level athlete can also receive various types of income: advertising revenue, prize money, or professional income under different tax categories. These incomes may fall under:

• Employee status
• Industrial and commercial profits (BIC), further divided into two regimes: micro or actual
• Non-commercial profits (BNC), further subdivided into two regimes: micro or actual

In addition to this diversity, don't forget about URSSAF contributions, which depend on the chosen status. Thus, self-employed athletes often face complex fiscal and social situations. This is why it is essential to carefully examine their profile in advance to avoid any unpleasant surprises.

Prize money: Sports victories and tax challenges

Even without a paycheck, the "prize money" earned by athletes must be declared. Although the link between a payslip and income seems simple, the tax system for athletes' income is more complex.
Indeed, in some cases, "prize money" — these sums won in competition — are considered by tax authorities as salary, even without a payslip.

Prize money: Understanding the tax obligations

When an athlete wins a medal, it is often accompanied by a monetary reward for their performance. However, this gross income must be subject to taxes and social contributions. For an athlete, whether a resident or non-resident, taxation on these earnings can vary. For example, for a non-resident athlete, a withholding tax should generally be applied to the "prize money." 

However, in some non-Olympic competitions, organizers sometimes forget this withholding, leaving the athlete responsible for declaring the income in their tax return.

The tax responsibility of athletes

In the case of filing errors, the athlete is personally liable for the tax obligations, not the competition organizer. This highlights the importance for high-level athletes to properly manage their income. Fortunately, there are specific tax provisions that help athletes optimize their taxation.

Exceptional income: Are there advantageous tax systems?

Athletes can benefit from the "quotient" system, which helps reduce tax on exceptional income, such as winning a gold medal at the Olympics.

Income smoothing is another system that allows for the taxation of an athlete based on the average income of the last 3 to 5 years, which is ideal when income fluctuates upwards. However, poor management can lead to a mismatch between income and tax payments. For example, in the event of a drop in income, the athlete may have to pay taxes in year N based on the income from year N-X, even if they do not have the income or cash flow to cover the tax.
 

RSM France can support you on these matters.