Northwestern Football Scholarships Taxable as Wages? IRS Says No

This past  March, the National Labor Relations Board ruled that players at Northwestern University could be considered employees, and are eligible to unionize.  The university doesn’t agree, and the appeal is still going strong.

What are the implications of student-athletes being treated as employees?  Having to pay union dues is one, but any dent to their beer money would hopefully be minimal compared to any union-negotiated pay increases. Also, this isn’t too big a deal, since if they make it to the NFL they’ll have to get used to paying NFLPA dues.

Another issue, if a player could be considered an employee, would that change the character of the scholarship they receive to wages, taxable like any other employee of the university? The IRS has provided advice that says the NLRB decision is “not controlling of whether the individual is an employee for federal tax purposes”. Thus, scholarships will continue to be nontaxable under section 117 of the Internal Revenue Code.

(Photo credit: BuschLeagueSports.com)

While dealing with the taxman can be difficult, these players still need to deal with the difficulty of a collegiate football season and all the work involved leading up to it. And, while they can breathe a sigh of relief that the federal government won’t come after them for tax, some states are known to use aggressive techniques targeting professional athletes.

If this case centers around how universities prepare their students to enter the real world, why doesn’t the University have to deal with adequately compensating student-athletes for the real world risks involved with a 300-lb lineman running at you full speed, willing to dish out a concussion?

You can reach me at wendlerj@llme.com. This discussion is not intended as tax advice, and cannot be relied upon for any purpose with the services of a qualified professional.

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