[StanfordMatt]

It will be fun to watch player's react when the IRS determines their compensation is taxable.  :)

I've never understood the idea that this change will induce shock amongst players. College campuses are filled with student employees. The freshman who works at the CoHo pays taxes on his wages and no one bats an eye or thinks the responsibility of having to fill out a 1040 will be too much for them to bear.

[StanfordMatt]

It will be fun to watch player's react when the IRS determines their compensation is taxable.  :)

I've never understood the idea that this change will induce shock amongst players. College campuses are filled with student employees. The freshman who works at the CoHo pays taxes on his wages and no one bats an eye or thinks the responsibility of having to fill out a 1040 will be too much for them to bear.

[dabigv13]

Sure but a CoHo employee is not being taxed on value of their housing or scholarship or meal plan.

The total compensation to an employee athlete would necessarily encompass these things, as they are the compensation that the NLRB adjudicator indicated makes them de facto employees.

So a student athlete would likely be paying a lot more in taxes than your typical CoHo employee, and they wouldn't necessarily be receiving any wages to pay the taxes on their non-cash compensation, at least as presently set up.

.....

Personally, if Stanford athletes unionize to become employees, I'll be well and truly done caring about Stanford sports.

[dabigv13]

Sure but a CoHo employee is not being taxed on value of their housing or scholarship or meal plan.

The total compensation to an employee athlete would necessarily encompass these things, as they are the compensation that the NLRB adjudicator indicated makes them de facto employees.

So a student athlete would likely be paying a lot more in taxes than your typical CoHo employee, and they wouldn't necessarily be receiving any wages to pay the taxes on their non-cash compensation, at least as presently set up.

.....

Personally, if Stanford athletes unionize to become employees, I'll be well and truly done caring about Stanford sports.

[OCcardinal]

Sure but a CoHo employee is not being taxed on value of their housing or scholarship or meal plan.

The total compensation to an employee athlete would necessarily encompass these things, as they are the compensation that the NLRB adjudicator indicated makes them de facto employees.

So a student athlete would likely be paying a lot more in taxes than your typical CoHo employee, and they wouldn't necessarily be receiving any wages to pay the taxes on their non-cash compensation, at least as presently set up.

I completely agree with the above and I don't understand why it isn't a bigger part of the discussion.  Here's some detail about the tax rules that would come into play:

College scholarships are exempt under IRC § 117, which excludes tuition from gross income when the scholarship meets specified criteria. In Rev. Rul. 77-263, the IRS held that athletic scholarships fit within § 117 because 1) the primary purpose of the $ was to further the students' education and training, 2) the $ was not given as a quid pro quo for past, present, or future services, and 3) athletes were not "under the excessive control or supervision" of the university.

Granted, that analysis was hanging by a thread to begin with.  But if athletes are employees then it would be 100% clear that none of the above factors would be met: 1 & 2 would not met because the money is for services and 3 would not met because the university controls the student under an employer/employee relationship.

So lets say you want to provide a full tuition athletic scholarship at Stanford of $60K.  Assuming the athlete has no other taxable income (including from other benefits like room and board), the athlete's take home pay is about $45K, after federal and state taxes, including Social Security and Medicare.  So even to attend Stanford the student will have to come up with $15K out of their own pocket (despite the "full ride").

Now, let's say Stanford wants to gross up the taxable scholarship so tuition remains fully covered.  By my calculation Stanford would have to pay about $86K (including employer-pad social security taxes).  So just to get back to square one Stanford has to come up with another $36K.

Now let's say Stanford wants to cover that $36K by increased fundraising.  Are donations to a professional sports team still tax deductible?  If not someone donating the $36K loses a big benefit. If say, you are in a 50% federal/state tax bracket, a donation of $36K only costs you $18K out of pocket (the govt pays the rest).  Now it costs the full $36K.

So to sum:

Before:
Donor in 50% tax bracket donates $60K for a player's full tuition scholarship
Scholarship is wholly tax exempt for the employee and no social security taxes etc.
True cost after tax deduction = $30K

After
Donor donates $86K in after-tax funds to cover an employee athlete's full tuition (no tax deduction)
True cost due to withholding and loss of tax deduction - $86K

So Stanford and its donors are now $56K behind in providing the same free tuition benefit for the player that they did before the conversion to employee status.

If other benefits, like room/board or special academic tutors not available to the general student population are now taxable the discrepancy grows.  And who knows if earnings on Stanford's athletics endowment would remain tax exempt.

There may be a handful of colleges who earn enough in their media rights deals to pay student athlete employees on top of what they would have to pay to the government in this scenario, but I'd have to imagine the situation would be rather bleak for most colleges without Congress passing a specific tax exemption for benefits paid to athletes employed by a college.

[OCcardinal]

Sure but a CoHo employee is not being taxed on value of their housing or scholarship or meal plan.

The total compensation to an employee athlete would necessarily encompass these things, as they are the compensation that the NLRB adjudicator indicated makes them de facto employees.

So a student athlete would likely be paying a lot more in taxes than your typical CoHo employee, and they wouldn't necessarily be receiving any wages to pay the taxes on their non-cash compensation, at least as presently set up.

I completely agree with the above and I don't understand why it isn't a bigger part of the discussion.  Here's some detail about the tax rules that would come into play:

College scholarships are exempt under IRC § 117, which excludes tuition from gross income when the scholarship meets specified criteria. In Rev. Rul. 77-263, the IRS held that athletic scholarships fit within § 117 because 1) the primary purpose of the $ was to further the students' education and training, 2) the $ was not given as a quid pro quo for past, present, or future services, and 3) athletes were not "under the excessive control or supervision" of the university.

Granted, that analysis was hanging by a thread to begin with.  But if athletes are employees then it would be 100% clear that none of the above factors would be met: 1 & 2 would not met because the money is for services and 3 would not met because the university controls the student under an employer/employee relationship.

So lets say you want to provide a full tuition athletic scholarship at Stanford of $60K.  Assuming the athlete has no other taxable income (including from other benefits like room and board), the athlete's take home pay is about $45K, after federal and state taxes, including Social Security and Medicare.  So even to attend Stanford the student will have to come up with $15K out of their own pocket (despite the "full ride").

Now, let's say Stanford wants to gross up the taxable scholarship so tuition remains fully covered.  By my calculation Stanford would have to pay about $86K (including employer-pad social security taxes).  So just to get back to square one Stanford has to come up with another $36K.

Now let's say Stanford wants to cover that $36K by increased fundraising.  Are donations to a professional sports team still tax deductible?  If not someone donating the $36K loses a big benefit. If say, you are in a 50% federal/state tax bracket, a donation of $36K only costs you $18K out of pocket (the govt pays the rest).  Now it costs the full $36K.

So to sum:

Before:
Donor in 50% tax bracket donates $60K for a player's full tuition scholarship
Scholarship is wholly tax exempt for the employee and no social security taxes etc.
True cost after tax deduction = $30K

After
Donor donates $86K in after-tax funds to cover an employee athlete's full tuition (no tax deduction)
True cost due to withholding and loss of tax deduction - $86K

So Stanford and its donors are now $56K behind in providing the same free tuition benefit for the player that they did before the conversion to employee status.

If other benefits, like room/board or special academic tutors not available to the general student population are now taxable the discrepancy grows.  And who knows if earnings on Stanford's athletics endowment would remain tax exempt.

There may be a handful of colleges who earn enough in their media rights deals to pay student athlete employees on top of what they would have to pay to the government in this scenario, but I'd have to imagine the situation would be rather bleak for most colleges without Congress passing a specific tax exemption for benefits paid to athletes employed by a college.

[jacket3ree]

These players should try working in a coal mine.


I remember a late night meeting in Winter Quarter 1986, perhaps at Terman, perhaps somewhere else, where they sprung the news on all of us teaching and research assistants that Uncle Sam was going to retroactively tax our fellowships, in addition to the taxes already pulled from our monthly stipends. The stipends were indeed salaries we used to pay for room, board, and the occasional (OK pretty frequent) trips to Larry Blake's Rathskeller in Berkeley.

No amount of not going to Larry Blake's Rathskeller in Berkeley was going to pay for taxes on a fellowship valued at $12,000.  Yes kids, back in 1985 the total value of my free ride (free but for you know the hours and hours of work it takes to be a TA) to Stanford for an entire academic year was $17,000.

That room in Terman or wherever cleared fast as we all bull rushed Ace Hardware looking for pitchforks.  The exit scene was straight out of AH with plenty of "bullshit <cough> bullshit" before storming out.

That all went away, thankfully. Retroactive?!  If I knew that fellowship was going to be taxed, I would have passed on grad school completely and taken that job in freaking Midland, Texas.  In petroleum engineering of all things.  And.....I probably would have been laid off within two years.

[jacket3ree]

These players should try working in a coal mine.


I remember a late night meeting in Winter Quarter 1986, perhaps at Terman, perhaps somewhere else, where they sprung the news on all of us teaching and research assistants that Uncle Sam was going to retroactively tax our fellowships, in addition to the taxes already pulled from our monthly stipends. The stipends were indeed salaries we used to pay for room, board, and the occasional (OK pretty frequent) trips to Larry Blake's Rathskeller in Berkeley.

No amount of not going to Larry Blake's Rathskeller in Berkeley was going to pay for taxes on a fellowship valued at $12,000.  Yes kids, back in 1985 the total value of my free ride (free but for you know the hours and hours of work it takes to be a TA) to Stanford for an entire academic year was $17,000.

That room in Terman or wherever cleared fast as we all bull rushed Ace Hardware looking for pitchforks.  The exit scene was straight out of AH with plenty of "bullshit <cough> bullshit" before storming out.

That all went away, thankfully. Retroactive?!  If I knew that fellowship was going to be taxed, I would have passed on grad school completely and taken that job in freaking Midland, Texas.  In petroleum engineering of all things.  And.....I probably would have been laid off within two years.

[StanfordMatt]

dabigv13 & OCcardinal- those are valid points. Thank you.

Wouldn't there be ways around this, though? Colleges and universities award scholarships for all sorts of reasons. If scholarships awarded through the music department are considered non-taxable compensation, what happens if a varsity basketball player happens to be an elite violinist? Could he not be paid an hourly wage for his services to the basketball team and his room & board be considered non-taxable as part of a music scholarship? Some colleges waive tuition payments for students from families with household income under a certain threshold. What if a basketball player would not otherwise be required to pay tuition under this criteria?

[StanfordMatt]

dabigv13 & OCcardinal- those are valid points. Thank you.

Wouldn't there be ways around this, though? Colleges and universities award scholarships for all sorts of reasons. If scholarships awarded through the music department are considered non-taxable compensation, what happens if a varsity basketball player happens to be an elite violinist? Could he not be paid an hourly wage for his services to the basketball team and his room & board be considered non-taxable as part of a music scholarship? Some colleges waive tuition payments for students from families with household income under a certain threshold. What if a basketball player would not otherwise be required to pay tuition under this criteria?

[dabigv13]

I don't think there is any way around it if athletes are employees and these things are their compensation. Otherwise why wouldn't schools just give all their athletes a violin scholarship to reduce their tax burden?

As I mentioned earlier in this thread, I think it's fairly absurd to consider athletes employees and for tuition and food and lodging and travel to be their compensation, and perhaps it will be overturned on appeal.

But unless there is legislation from congress, I don't think there is any way for schools and athlete/employees to avoid this tax burden.

[dabigv13]

I don't think there is any way around it if athletes are employees and these things are their compensation. Otherwise why wouldn't schools just give all their athletes a violin scholarship to reduce their tax burden?

As I mentioned earlier in this thread, I think it's fairly absurd to consider athletes employees and for tuition and food and lodging and travel to be their compensation, and perhaps it will be overturned on appeal.

But unless there is legislation from congress, I don't think there is any way for schools and athlete/employees to avoid this tax burden.