Many scholars dream of winning the Nobel Prize. The prize, which acknowledges their hard work and contributions to their respective fields are greatly appreciated. Many people are not aware that the newly announced American winners of this year’s Nobel Peace prize Randy W. Schekman, Thomas C. Südhof and James E. Rothman if they claim their winnings will be taxed on it.
Taxed! After years of hard work and effort the American government is the only nation that taxes it Nobel Prize winners. The prize, which is estimated to be 1.2 million this year is taxed because the IRS taxes cash prizes and awards regardless of how they were earned. Under these regulations even Olympic prizes are taxed. Before the Reagan tax reforms of the mid-1980s, many prizes were tax-free as long as no significant services were involved.
To avoid the tax many winners have chosen not to claim the prize or have chosen another more common route of asking for the prize money to be directly donated to a charity of their choosing. Former Vice President Al Gore and President Barack Obama both chose that route under IRS Publication 74(b) which allows laureates to completely avoid the tax by assigning the prize money to a charity before they actually receive it.
The Nobel Committee spoke out against this in 1988 stating in part that:
“Almost all of the Nobelists are salaried researchers at labs or universities. They pay their taxes since they have no means of sheltering their incomes the way investors do. They have few write-offs and share all the woes of the average taxpayer. With the new tax law, they do not even have the modifying opportunity of income averaging to reduce their tax on the prize money.”
What do you think? Is it fair that the IRS taxes Nobel Prize winners?