Player NIL and TAXES!

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Player 1 gets $0 NIL
Player 2 gets $50k NIL
Player 3 gets $200k NIL
How does these amounts affect Taxes, eligibility for scholarships and financial aid?
Does room and board and travel and living expenses' paid by the U become taxable?
 

Gopher Coffee said:
Player 1 gets $0 NIL
Player 2 gets $50k NIL
Player 3 gets $200k NIL
How does these amounts affect Taxes, eligibility for scholarships and financial aid?
Does room and board and travel and living expenses' paid by the U become taxable?
Click to expand...
First NIL needs to be defined.

If it is true purpose - in Exchange for name, image, likeness and there is a real contract then it is just included in Student’s gross income. Scholarship would remain the same.

Now with a collective, that is where the details matter. I would doubt they meet the rules. They are difficult to apply, without specific work and discussion with IRS. Then again, most things I know on that side are discussed flippantly. This is not a subject that can be considered without strict, precise, and accurate information.

If they receive money from the school (pay for play) then it scholarships should be taxable. I.E. House Settlement.

An athletic scholarship, can’t be pay for play. Even then, only a portion, would not be taxable.

The portion used for tuition and fees. Room and board would be taxable. It should be included in Gross income. I think any meal plans and other would be taxable. However, keep in mind That has always been true.

The sport can’t be required. otherwise, the whole thing is taxable income.

The House settlement, might address. However, they would likely not be able to change things with IRS taxability.
 
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atsgopher said:
First NIL needs to be defined.

If it is true purpose - in Exchange for name, image, likeness and there is a real contract then it is just included in Student’s gross income. Scholarship would remain the same.

Now with a collective, that is where the details matter. I would doubt they meet the rules. They are difficult to apply, without specific work and discussion with IRS. Then again, most things I know on that side are discussed flippantly. This is not a subject that can be considered without strict, precise, and accurate information.

If they receive money from the school (pay for play) then it scholarships should be taxable. I.E. House Settlement.

An athletic scholarship, can’t be pay for play. Even then, only a portion, would not be taxable.

The portion used for tuition and fees. Room and board would be taxable. It should be included in Gross income. I think any meal plans and other would be taxable. However, keep in mind That has always been true.

The sport can’t be required. otherwise, the whole thing is taxable income.

The House settlement, might address. However, they would likely not be able to change things with IRS taxability.
Click to expand...

Great explanation! Well done.

Comments on a couple of lines:

"An athletic scholarship, can’t be pay for play. Even then, only a portion, would not be taxable." and "The sport can’t be required. otherwise, the whole thing is taxable income."

I imagine that this treatment will continue even though we know that the scholarship wouldn't have been awarded without the expectation of participation but that's the way it's been treated for many years. Revoking that allowance would be far too disruptive. I guess a saving grace to preserve the illusion is the requirement that scholarships (at least for the year) can't be revoked if the player quits or is dismissed from the team.

This also reminded me of a funny quote from the legendary Kansas coach Phog Allen. Wilt Chamberlain's recruitment was rumored to be a major bidding war. After Wilt announced he was going to Kansas, reporters asked Allen for his reaction. Allen replied: "Oh, that's great news! I hope he comes out for the team."
 


Gopher Coffee said:
Player 1 gets $0 NIL
Player 2 gets $50k NIL
Player 3 gets $200k NIL
How does these amounts affect Taxes, eligibility for scholarships and financial aid?
Does room and board and travel and living expenses' paid by the U become taxable?
Click to expand...
The NIL money is taxable, that is a no brainer. I think you are correct that the other benefits they get, including the scholarship value, should now be taxable benefits as well. If one works for a company ( as really these athletes are now doing) and gets a car to use- that's a taxable benefit for any personal use. You make a good point here.
 

Bob_Loblaw said:
Scholarships and room and bored would not be taxable - there is an exemption written into the code. All NIL is taxable income regardless of if you get it paid by the school or from some collective.
Click to expand...
That exemption should be looked at again now, considering that the financial landscape of sports has changed. With social security payments, for example, if you have other income your social security earnings begin to get taxed more heavily. I think this should be done with college sports now if you earn over x amount in NIL or revenue sharing payments, then the exemption goes away.
 

bga1 said:
That exemption should be looked at again now, considering that the financial landscape of sports has changed. With social security payments, for example, if you have other income your social security earnings begin to get taxed more heavily. I think this should be done with college sports now if you earn over x amount in NIL or revenue sharing payments, then the exemption goes away.
Click to expand...
I agree.

I believe they should completely open Pandora's Box on what employment looks like.
 

RE: Taxes --- If NIL agreements are performed in various states, do the athletes pay taxes in all states in which they perform?
 



Scottsdale Gopher said:
RE: Taxes --- If NIL agreements are performed in various states, do the athletes pay taxes in all states in which they perform?
Click to expand...
Good question. If a U of MN student athletes' home is Florida (No state taxes), is he liable for NIL or Revenue sharing, State taxes in MN?
 

bga1 said:
The NIL money is taxable, that is a no brainer. I think you are correct that the other benefits they get, including the scholarship value, should now be taxable benefits as well. If one works for a company ( as really these athletes are now doing) and gets a car to use- that's a taxable benefit for any personal use. You make a good point here.
Click to expand...
Since not all players will get NIL, they may not be able to afford taxes on the value of their scholarship. For that reason, I think scholarships should remain tax free.
 

bga1 said:
That exemption should be looked at again now, considering that the financial landscape of sports has changed. With social security payments, for example, if you have other income your social security earnings begin to get taxed more heavily. I think this should be done with college sports now if you earn over x amount in NIL or revenue sharing payments, then the exemption goes away.
Click to expand...
Okay, I like this version.
 

Gopher Coffee said:
Good question. If a U of MN student athletes' home is Florida (No state taxes), is he liable for NIL or Revenue sharing, State taxes in MN?
Click to expand...

As someone who has moved around, working remotely, you get taxed on where your permanent address is. If you work 30+ days in a different state in a year, you would then get taxed in that state.

I would think a player from Florida would not get taxed for NIL in MN since it's not technically pay for play, unless that 'work' exceeded 30 days. School/playing football, basketball, etc would not count as work. Revenue sharing may end up being different though since that would be through the school/B1G and is actually paying the player for playing.
 



GopherWeatherGuy said:
As someone who has moved around, working remotely, you get taxed on where your permanent address is. If you work 30+ days in a different state in a year, you would then get taxed in that state.

I would think a player from Florida would not get taxed for NIL in MN since it's not technically pay for play, unless that 'work' exceeded 30 days. School/playing football, basketball, etc would not count as work. Revenue sharing may end up being different though since that would be through the school/B1G and is actually paying the player for playing.
Click to expand...

Not disagreeing with your personal experience, but professional athletes pay taxes in nearly every state in which they perform. Link here.
 


atsgopher said:
First NIL needs to be defined.

If it is true purpose - in Exchange for name, image, likeness and there is a real contract then it is just included in Student’s gross income. Scholarship would remain the same.

Now with a collective, that is where the details matter. I would doubt they meet the rules. They are difficult to apply, without specific work and discussion with IRS. Then again, most things I know on that side are discussed flippantly. This is not a subject that can be considered without strict, precise, and accurate information.

If they receive money from the school (pay for play) then it scholarships should be taxable. I.E. House Settlement.

An athletic scholarship, can’t be pay for play. Even then, only a portion, would not be taxable.

The portion used for tuition and fees. Room and board would be taxable. It should be included in Gross income. I think any meal plans and other would be taxable. However, keep in mind That has always been true.

The sport can’t be required. otherwise, the whole thing is taxable income.

The House settlement, might address. However, they would likely not be able to change things with IRS taxability.
Click to expand...
What do you mean by "pay for play"? Athletic scholarships are generally not taxable and they are only awarded to people who play the support.
 

Scottsdale Gopher said:
Not disagreeing with your personal experience, but professional athletes pay taxes in nearly every state in which they perform. Link here.
Click to expand...
The way the contracts are written likely make a difference here. A pro athlete pays taxes in those states because he is very clearly being compensated for work done in that state.

A player who gets paid NIL funds for shooting a commercial for a local bank in MN likely has income sources to MN.

Now I don’t know how these agreements are all structured so I don’t think it’s likely that there is a one size fits all answer here.
 

Bob_Loblaw said:
,What do you mean by "pay for play"? Athletic scholarships are generally not taxable and they are only awarded to people who play the support.
Click to expand...
There can be no requirement to play the sport. That was the rule for years. Perhaps, its changed and granted it may have been 15-20 years since I looked.
Bob_Loblaw said:
Scholarships and room and bored would not be taxable - there is an exemption written into the code. All NIL is taxable income regardless of if you get it paid by the school or from some collective.
Click to expand...

Room and board are not qualified education expenses. They are and always have been taxable.

My guess is you're misunderstanding that athletic exception. Barring changes The exception is more akin to we won't enforce an athletic scholarship as pay for play. We will consider it like an educational scholarship.

However, it explicitly stated that the student still would need to meet the remainder of the tests.

The original post I wrote, was dealing with the question of "How is the scholarship money treated for tax purposes, with NIL." then the source would matter. The Student would have to do some work qualifying for that pay. If it is an enticement to come to a school, to play a sport, then that scholarship money would be taxable, in addition to the NILs being included in gross income.

And Yes, The NIL portion is always taxable. Perhaps I do not make that portion as clear as I thought it was self evident.
 

TwistingMyMelon said:
Great explanation! Well done.

Comments on a couple of lines:

"An athletic scholarship, can’t be pay for play. Even then, only a portion, would not be taxable." and "The sport can’t be required. otherwise, the whole thing is taxable income."

I imagine that this treatment will continue even though we know that the scholarship wouldn't have been awarded without the expectation of participation but that's the way it's been treated for many years. Revoking that allowance would be far too disruptive. I guess a saving grace to preserve the illusion is the requirement that scholarships (at least for the year) can't be revoked if the player quits or is dismissed from the team.

This also reminded me of a funny quote from the legendary Kansas coach Phog Allen. Wilt Chamberlain's recruitment was rumored to be a major bidding war. After Wilt announced he was going to Kansas, reporters asked Allen for his reaction. Allen replied: "Oh, that's great news! I hope he comes out for the team."
Click to expand...
it is kind of a wink wink deal with the IRS. obviously its pay for play, but they put it in there saying it wasn't. Unless of course they do receive pay, or the Sport is "required."

Reminds me of another weird example we went over in Tax class: In 1998 McGwire/Sosa HR chase.

One groundskeeper caught a McGwire record HR ball. There were offers to buy it for $1 Million. They were valid offers before it was hit. The guy says f that and gives it to McGwire.

The problem, was by IRS rules of Constructive receipt, he was liable for $1 Million in gross income. It's not their issue that he chose to dispose of it for less.

The Commissioner of the IRS stepped in to block enforcement. Issued a special revenue ruling exempting this guy from the tax bill.
 

atsgopher said:
There can be no requirement to play the sport. That was the rule for years. Perhaps, its changed and granted it may have been 15-20 years since I looked.


Room and board are not qualified education expenses. They are and always have been taxable.

My guess is you're misunderstanding that athletic exception. Barring changes The exception is more akin to we won't enforce an athletic scholarship as pay for play. We will consider it like an educational scholarship.

However, it explicitly stated that the student still would need to meet the remainder of the tests.

The original post I wrote, was dealing with the question of "How is the scholarship money treated for tax purposes, with NIL." then the source would matter. The Student would have to do some work qualifying for that pay. If it is an enticement to come to a school, to play a sport, then that scholarship money would be taxable, in addition to the NILs being included in gross income.

And Yes, The NIL portion is always taxable. Perhaps I do not make that portion as clear as I thought it was self evident.
Click to expand...
No, I'm not disagreeing with you, I was just curious what you meant. How did athletic scholarships work? I know the tuition portion wasn't taxable and they only gave scholarships to people who played, so it seemed to be pay for play.

Maybe they satisfied that requirement by not pulling the scholarship if you quit the team? Obviously, it wouldn't be renewed the following year, but maybe that satisfied the "no pay for playment" rule.
 

atsgopher said:
it is kind of a wink wink deal with the IRS. obviously its pay for play, but they put it in there saying it wasn't. Unless of course they do receive pay, or the Sport is "required."

Reminds me of another weird example we went over in Tax class: In 1998 McGwire/Sosa HR chase.

One groundskeeper caught a McGwire record HR ball. There were offers to buy it for $1 Million. They were valid offers before it was hit. The guy says f that and gives it to McGwire.

The problem, was by IRS rules of Constructive receipt, he was liable for $1 Million in gross income. It's not their issue that he chose to dispose of it for less.

The Commissioner of the IRS stepped in to block enforcement. Issued a special revenue ruling exempting this guy from the tax bill.
Click to expand...

Good story! Another reminder that the tax law isn't just the verbatim reading of the words. It also depends on application which can be selective and also may involve intervening circumstances.

Sometimes, they can just throw the law out the window in particular cases. A very notable example of that was related to the exclusion from taxable income of government forgiveness of business loans given during the COVID pandemic if the taxpayer used the proceeds for certain designated business purposes. That forgiveness wasn't at all remarkable because there were numerous types of loan forgiveness situations that were excluded from taxable income. What was remarkable was the response from the government when financial advisors asked the Treasury Department if they could also deduct the expenditures paid from the proceeds of those forgiven loans. Trump's Treasury Secretary at the time (Mnuchin) said "Absolutely not! Those are nondeductible expenditures related to tax exempt income. That's Tax 101." But, Congress, who is usually King when it comes to taxation, said: "Wait a minute, we want taxpayers to deduct these payments!" and included a provision to allow them to do that. So, business taxpayers were able to deduct expenditures from proceeds that weren't taxable in the first place. Great situation if you can get it!
 


Bob_Loblaw said:
No, I'm not disagreeing with you, I was just curious what you meant. How did athletic scholarships work? I know the tuition portion wasn't taxable and they only gave scholarships to people who played, so it seemed to be pay for play.

Maybe they satisfied that requirement by not pulling the scholarship if you quit the team? Obviously, it wouldn't be renewed the following year, but maybe that satisfied the "no pay for playment" rule.
Click to expand...
If I recall correctly is was a 3 part test.
1) you can expect but not require participation in the sport.
2) cant cancel it
3) they can’t have any other conditons of service in The event of nonperformance
(note: this is suspect in my memory). I think its similar to this though. So you can’t say, if your injured then you work concessions or be the waterboy, etc.

Their was a quid pro quo test, for all scholarships, and probably still in use.

I believe it came from a supreme court case. Too long ago to recall which one. However, it wasn’t a simple quid pro quo. They had conditions.

That had an economic analysis test, and perhaps it was a bargaining conditon?

The bargaining makes sense to me. Thus , I am a little supect of my memory there. I.E. If there is a negotiation, then clearly you have a quid pro quo, and thus it would be taxable.

I had been thinking Someone like AJ Storr or in a Hypothetical the TN QB hold out (if school did renegotiate ) it would clearly violate any idea that the scholarship was not indeed compensation.
 

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