Yes, its opening the Pandora's box for many reasons. Classification of stipends and student/employee status is just another area that will be very gray. Like Upstater said, stipends are not treated universally in each state or university and sometimes vary even within a University depending on the type of stipend. Status of funding during summer semester is also treated different for some people. Speaking for Pitt, some fellowships and stipends are taxable at local/state/federal and for SS/Med/UC, while others are only taxable for federal returns. The best thing to do is take everything to the tax man and let them figure it out. As a general rule that I have seen with students at Pitt, most post doc fellowships and TA stipends are considered income and taxable by all authorities and SS/Med/UC is taken out each month. Most education/research stipends and NSF scholarship/stipends are considered scholarship/stipend and taxable only by federal taxes and no SS/Med/UC is taken out. I have spoken directly with State and Local tax authorities and they have said this to be true. Pitt also defines grad students as both students and employees, and interchanges your status depending on the situation. Again, leading to confusing when preparing taxes or other forms that require employment status.
Like you touched on: Are athletes going to be considered students or employees? Is the stipend considered a scholarship, a stipend, a grant, income, etc? Sounds like it could be messy, and tax considerations are not something the schools can simply solve themselves. It would require states and federal government support. Good luck with that.
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