Question about theoretical 'stipend' for players

[UConnSportsGuy]

Given the renewed push behind giving players a 'stipend', at what point does the Government/IRS get involved? Everything I know about law or taxes I learned by watching TV...so basically nothing. But I have to think that if universities start giving players money on top of the scholarships, then the IRS will have to get involved and start taxing that 'compensation'. And are universities then considered 'employers' for the players they are paying and have to provide other benefits as well?

I am probably just over-thinking this (I was bored on the train on the way to work this morning). But it got me thinking.

 

[frankthetank]

Given the renewed push behind giving players a 'stipend', at what point does the Government/IRS get involved? Everything I know about law or taxes I learned by watching TV...so basically nothing. But I have to think that if universities start giving players money on top of the scholarships, then the IRS will have to get involved and start taxing that 'compensation'. And are universities then considered 'employers' for the players they are paying and have to provide other benefits as well?

I am probably just over-thinking this (I was bored on the train on the way to work this morning). But it got me thinking.

Unlike the supposed threat/hope of taxation of athletic departments (which is ultimately a political non-starter) that's being discussed in other threads, I don't think that you're overthinking this particular issue at all. These are VERY critical issues for universities to figure out. At what point does presumably non-taxable "cost of attendance" cross over into taxable "compensation"? How is it determined at each school? Are there adjustments depending upon where the school is located (i.e. Starksville, MS vs. the UCLA campus on the West Side of LA)?

This is a large reason why commissioners and athletic directors keep phrasing these stipends as "cost of attendance", as the argument there is that the school is merely covering the additional costs beyond tuition, books and fees that a student would reasonably incur in order to attend (so that student isn't receiving a windfall or true compensation). Neither the school nor the students want the cost of attendance to be deemed to be taxable income in any shape or form, so they're going to go through airtight measures to ensure that doesn't occur.

 

[woomba]

If you mean in terms of taxes - technically anything that's not tuition + school supplies/fees can be taxed.

However, they will not owe any taxes on income that is under a set minimum (which is around $10K if I remember correctly) so most likely they will need to file a return but not actually pay taxes.

Here's a link with more details : http://www.finaid.org/scholarships/taxability.phtml

 

[junglehusky]

Well having been a graduate student, yes stipends are taxed as income. Over the past decade or so universities have been more stringent in getting students aware of their filing obligations (one example of bureaucratic creep). Side note - for students who get fellowships from ouside sources, the school won't do withholding, so you have to do quarterly estimated payments. But in that case, the university does not consider itself your employer - at least for postdocs, I think it's true for students too - it considers you a contractor or some legalese distinction like that. I'm not sure the reason why, perhaps to keep postdocs and grad students from unionizing... anyway they generally provide do benefits like a health plan where they split the cost with the employee / contractor. I'm sure athletic scholarships have language in the document about health coverage plus sports medicine, etc... maybe someone else can elaborate on that. But I could see schools wrangling their way around the "employee / employer" definitions if this stipend thing comes to pass.

 

[UPitt]

Well having been a graduate student, yes stipends are taxed as income. Over the past decade or so universities have been more stringent in getting students aware of their filing obligations (one example of bureaucratic creep). Side note - for students who get fellowships from ouside sources, the school won't do withholding, so you have to do quarterly estimated payments. But in that case, the university does not consider itself your employer - at least for postdocs, I think it's true for students too - it considers you a contractor or some legalese distinction like that. I'm not sure the reason why, perhaps to keep postdocs and grad students from unionizing... anyway they generally provide do benefits like a health plan where they split the cost with the employee / contractor. I'm sure athletic scholarships have language in the document about health coverage plus sports medicine, etc... maybe someone else can elaborate on that. But I could see schools wrangling their way around the "employee / employer" definitions if this stipend thing comes to pass.

Stipends are taxed as income differently in every state. I have many close friends on engineering stipends. I believe all stipends are taxed on the federal level. On the state and local level it varies by state and type of stipend. For example, in PA, a research "stipend" from the school or NSF is not taxed by the state or local. Although the NSF stipend did create confusion with the tax expert and I was required to get a letter from the PA tax department stating that NSF stipend was not taxable at the state or local level. Money earned from TA is usually subject to taxation at state and local levels. I am not as familiar with postdocs and graduate assistants taxation of income. My girlfriend is currently a graduate student at Pitt, and we spend hours meeting a tax expert each year before he can began doing her taxes because she earns little bits of income from several school sources to go along with her NSF scholarship. At the end of the day, some of her income is taxed only on the federal level and some is subject to all taxes and some income is subject to something in between. The conclusion is that if graduate students and tax experts can not understand the laws of stipends, how can they expect college football players to understand. To simplify the solution, they use COA, because it will likely be less subject to taxation.

 

[TouchdownHusky]

Too funny. We don't tax enough people as it is. What do have now . . . . 24 percent of Americans pay taxes to support the other 76% of Americans and non Americans who cannot, do not, will not work! Now we want to tax those getting college scholarships. How bout taxing the bowls. Want to have a power conference with all the "elite teams", then get ready to pay. That'll open up things up for more teams to compete for NC.

 

[upstater]

Given the renewed push behind giving players a 'stipend', at what point does the Government/IRS get involved? Everything I know about law or taxes I learned by watching TV...so basically nothing. But I have to think that if universities start giving players money on top of the scholarships, then the IRS will have to get involved and start taxing that 'compensation'. And are universities then considered 'employers' for the players they are paying and have to provide other benefits as well?

I am probably just over-thinking this (I was bored on the train on the way to work this morning). But it got me thinking.

It's up to the state and the locality to tax the stipend. These stipends are free and clear from federal laws. IF the university can show that these expenses are regular.

Here's the tricky part. In order for these stipends to be free and clear of the feds, the expense list has to work across the board for all students. Count me as a skeptic. I don't think university presidents are going to want to show an even higher amount of expenses to attend. Maybe Alabama is now going to jack up the cost estimate of expenses for all students from the current $2k to $4k, because they just don't care, but I'll be surprised if northern presidents pull their pants down like that.

Lastly, states and local taxing authorities can and do tax stipends for students, but only the knuckleheads.

 

[upstater]

Unlike the supposed threat/hope of taxation of athletic departments (which is ultimately a political non-starter) that's being discussed in other threads, I don't think that you're overthinking this particular issue at all. These are VERY critical issues for universities to figure out. At what point does presumably non-taxable "cost of attendance" cross over into taxable "compensation"? How is it determined at each school? Are there adjustments depending upon where the school is located (i.e. Starksville, MS vs. the UCLA campus on the West Side of LA)?

This is a large reason why commissioners and athletic directors keep phrasing these stipends as "cost of attendance", as the argument there is that the school is merely covering the additional costs beyond tuition, books and fees that a student would reasonably incur in order to attend (so that student isn't receiving a windfall or true compensation). Neither the school nor the students want the cost of attendance to be deemed to be taxable income in any shape or form, so they're going to go through airtight measures to ensure that doesn't occur.

It is taxable income for states and local taxing authorities. The federal government specifically designates it as nontaxable. It doesn't matter what the schools call it, not at all. Because unless these students are itemizing and offsetting expenses such as books (travel and housing doesn't count for itemization, nor does food), it is taxable at the state and local levels.

 

[upstater]

Stipends are taxed as income differently in every state. I have many close friends on engineering stipends. I believe all stipends are taxed on the federal level. On the state and local level it varies by state and type of stipend. For example, in PA, a research "stipend" from the school or NSF is not taxed by the state or local. Although the NSF stipend did create confusion with the tax expert and I was required to get a letter from the PA tax department stating that NSF stipend was not taxable at the state or local level. Money earned from TA is usually subject to taxation at state and local levels. I am not as familiar with postdocs and graduate assistants taxation of income. My girlfriend is currently a graduate student at Pitt, and we spend hours meeting a tax expert each year before he can began doing her taxes because she earns little bits of income from several school sources to go along with her NSF scholarship. At the end of the day, some of her income is taxed only on the federal level and some is subject to all taxes and some income is subject to something in between. The conclusion is that if graduate students and tax experts can not understand the laws of stipends, how can they expect college football players to understand. To simplify the solution, they use COA, because it will likely be less subject to taxation.

On the federal level, stipends are not taxed. Maybe there's a minimum. One thing we have to remember here is that the student athletes have room & board all covered. Stipends, on the other hand, are paid to TAs and grads to compensate for those room & board expenses. That's why they are not taxable at the federal level. It may be that certain stipends from the top schools get to the $20k area, above a federal limit, but the feds exempt stipends from taxation generally.

 

[Carl Spackler]

Hell, if it's going to happen, the easier route is to actually make student athletes employees for their scholarships and contractors for anything beyond. Make them file W2's on their scholarship, and 1099's on anything beyond tuition and books/fees.

In that case, you've also got the Medicare and Medicaid fees to take out, the work comp insurance (which is going to be astronomical, you know because football players tend to get hurt on the job), social security taxes. Better make sure the labor laws are posted in all bathrooms, facilities. better make sure you are being an equal opportunity employer. Better make damn sure you've got a good lawyer retained for the work comp cases.

This whole thing is insane. Pandora's box. Student athletes cannot receive anything beyond scholarship needs, or the system is gone and needs to be started from scratch.

 

[upstater]

Hell, if it's going to happen, the easier route is to actually make student athletes employees for their scholarships and contractors for anything beyond. Make them file W2's on their scholarship, and 1099's on anything beyond tuition and books/fees.

In that case, you've also got the Medicare and Medicaid fees to take out, the work comp insurance (which is going to be astronomical, you know because football players tend to get hurt on the job), social security taxes. Better make sure the labor laws are posted in all bathrooms, facilities. better make sure you are being an equal opportunity employer. Better make damn sure you've got a good lawyer retained for the work comp cases.

This whole thing is insane. Pandora's box. Student athletes cannot receive anything beyond scholarship needs, or the system is gone and needs to be started from scratch.

Universities can't even afford to go down this road because 70% of the faculty are part-timers who work for minimum wage. $2k to $2.5k a class for 20 hours work over 16 weeks = 320 hours. In the last few years, they've been cutting TA stipends. This will cause consternation unless athletics changes go totally under the radar (which is always possible since the AD is largely separate from the rest of the university).

 

[Carl Spackler]

Universities can't even afford to go down this road because 70% of the faculty are part-timers who work for minimum wage. $2k to $2.5k a class for 20 hours work over 16 weeks = 320 hours. In the last few years, they've been cutting TA stipends. This will cause consternation unless athletics changes go totally under the radar (which is always possible since the AD is largely separate from the rest of the university).

Come now upstater - you know that what I wrote is fantasy for a much simpler reason. If the schools were to do that, they would actually have to have funds available in cash / liquid form to actually pay every scholarship athlete their periodic payroll. Scholarship money, to my knowledge, correct me if I'm wrong, is accounting spreadsheet paper money. If every school in the country had to actually cash out on the full scholarships they offer, there would be a big problem, even for those universities collecting $20+mill a year in television revenue around athletics.

 

[upstater]

Come now upstater - you know that what I wrote is fantasy for a much simpler reason. If the schools were to do that, they would actually have to have funds available in cash / liquid form to actually pay every scholarship athlete their periodic payroll. Scholarship money, to my knowledge, correct me if I'm wrong, is accounting spreadsheet paper money. If every school in the country had to actually cash out on the full scholarships they offer, there would be a big problem, even for those universities collecting $20+mill a year in television revenue around athletics.

It's not paper money, as far as I'm concerned. Universities operate with each department or program serving as its own unit. Every department literally earns its pay per head. We have course minimums for instance. We also have departmental budgets that depend upon full paying students. This literally means that we are in the business of attracting students to our departments. If we can't do that (and this means attracting students who will pay to take our courses) we get cut off by the university. Now, imagine what happens at a public institution (scholarship distribution rate of 10% among students) when full scholarship kids enroll in our classes. There are only so many of these students that we can take. A faculty member in my field really can't do more than 50 students per class or the workload would be never-ending (this is why you have TAs for large lectures). When you consider that 20% of the students are athletes at many universities, this is not an insignificant amount of work. We're literally paid for our labor per head. This is why the money is always real for scholarships. Anyway you cut it.

When Seton Hall announced two years ago that it would be cutting tuition by 10%, everyone knew immediately what they were doing. They were reducing scholarship money to students. More schools will do so in the future. Cut tuition, then whatever amount you go into the red, cut that too from the scholarship budget. This literally means that university finances are absolutely tied to the cost per student (i.e. how much the school spends per student). The more scholarships you give, the more you cut into the cost per student. It decreases.

 

[Rumrunner]

Imagine the time when it comes to planning a home and home series, and the bean counter is concerned that the wages to be paid to a particular taxing jurisdiction means the game should be played elsewhere? As most know, professional athletes have to file state tax returns in every jurisdiction in which they compete, as well as the state that they are domiciled in.

So a team of 85 football players will be filing about 500 state tax returns (average of 6 states).

Basketball players will probably have to file in a dozen states, so over 150 state tax returns.

How about the overseas games? The EU likes their taxes, too!

 

[Carl Spackler]

It's not paper money, as far as I'm concerned. Universities operate with each department or program serving as its own unit. Every department literally earns its pay per head. We have course minimums for instance. We also have departmental budgets that depend upon full paying students. This literally means that we are in the business of attracting students to our departments. If we can't do that (and this means attracting students who will pay to take our courses) we get cut off by the university. Now, imagine what happens at a public institution (scholarship distribution rate of 10% among students) when full scholarship kids enroll in our classes. There are only so many of these students that we can take. A faculty member in my field really can't do more than 50 students per class or the workload would be never-ending (this is why you have TAs for large lectures). When you consider that 20% of the students are athletes at many universities, this is not an insignificant amount of work. We're literally paid for our labor per head. This is why the money is always real for scholarships. Anyway you cut it.

When Seton Hall announced two years ago that it would be cutting tuition by 10%, everyone knew immediately what they were doing. They were reducing scholarship money to students. More schools will do so in the future. Cut tuition, then whatever amount you go into the red, cut that too from the scholarship budget. This literally means that university finances are absolutely tied to the cost per student (i.e. how much the school spends per student). The more scholarships you give, the more you cut into the cost per student. It decreases.

I'm not arguing that scholarship money isn't real, but it does get pushed around on paper, that I'm sure about it. The words, liquid, fungible, apply. It's the concept that scholarship money is somehow earned similar to a paycheck that I'm arguing against. Essentially what the stipend (in addition to a scholarship) is being pitched as - is a form of contracted payment, and it's based I think, on the false concept that scholarship money is something somehow earned. Stipend money, I agree with the OP, should be taxable and players should need to file 1099's. And I think that TA stipends should also be taxable. (and I've been accused of being a republican)

The way to really address this issue, and put it all out on the table, is that every university that is arguing for the use of a stipend, needs to also completely fund every scholarship in their pocket, at the beginning of each semester, with their entire scholarship money. That student, then would be responsible for making all the same payments that non-scholarship students are required to make.

How many universities - especially the ones like say in the SEC - would be willing to turn over 5 figure checks to their recruited athletes every August and January, and expect them to be responsible enough to manage them?

I actually, wouldn't have an issue with that, given the quality of athletes we recruit at UCONN. But I think there are other administrators, at other schools, that would be a little concerned about cashing out the entire scholarship funds to their football players.

 

[upstater]

I'm not arguing that scholarship money isn't real, but it does get pushed around on paper, that I'm sure about it. The words, liquid, fungible, apply. It's the concept that scholarship money is somehow earned similar to a paycheck that I'm arguing against. Essentially what the stipend (in addition to a scholarship) is being pitched as - is a form of contracted payment, and it's based I think, on the false concept that scholarship money is something somehow earned. Stipend money, I agree with the OP, should be taxable and players should need to file 1099's. And I think that TA stipends should also be taxable. (and I've been accused of being a republican)

The way to really address this issue, and put it all out on the table, is that every university that is arguing for the use of a stipend, needs to also completely fund every scholarship in their pocket, at the beginning of each semester, with their entire scholarship money. That student, then would be responsible for making all the same payments that non-scholarship students are required to make.

How many universities - especially the ones like say in the SEC - would be willing to turn over 5 figure checks to their recruited athletes every August and January, and expect them to be responsible enough to manage them?

I actually, wouldn't have an issue with that, given the quality of athletes we recruit at UCONN. But I think there are other administrators, at other schools, that would be a little concerned about cashing out the entire scholarship funds to their football players.

I understand your first point now. Yes, scholarships are fungible. As I showed in my Seton Hall example.

As for stipends, consider then that they'd also have to tax room & board, since stipends are expense related. TAs don't get room & board.

 

[Nostical]

The work comp insurance ...is going to be astronomical, you know because football players tend to get hurt on the job. Better make damn sure you've got a good lawyer retained for the work comp cases.

This is actually the biggest concern of the schools. It's the issue that keeps schools on edge as they try to tweak the relationship they have with the players. They will do whatever it takes to avoid having the government deem them employees. And the more schools tilt the relationship in that direction, (with payment schemes that look good on paper) the more slippery the slope becomes. There will be lots of careful thought going into any of these cost-of-attendance models.