Tax News: Decision to Treat College Athletes as Employees Creates Many Tax Questions

In a landmark decision, the Chicago district of the National Labor Relations Board has ruled that Northwestern football players are employees of the university and can unionize.  In the ruling, the regional director stated that the players “fall squarely within the [National Labor Relations] Act’s broad definition of ’employee’ when one considers the common law definition of ’employee.”  For college administrators and  most fans of college football, the obvious issue at hand is if this will lead to players being paid, creating their own schedules, or going on strike.  However, this is only the start of the questions that begin with this ruling.

Many students take jobs working for the college in order to earn extra money and these jobs can generate taxable income.  Generally, college scholarships and grants are not taxable.  Based on this new ruling it would seem clear that any straight pay these athletes get will be taxable, but does it also call into question the scholarship itself?  Is the scholarship a payment for performance on the field as opposed to a traditional scholarship to aid with the cost of school?  Furthermore, as employees it would create payroll tax responsibilities for the university.  Besides the typical water cooler talk about paying athletes and the problems that creates, universities are now also going to have to deal with the scrutiny of the taxing agencies as well.

Overall, employee classification is a major issue when it comes to payroll and income taxes.  In California, the EDD audits businesses to make sure they are properly classifying employees, and reporting and paying tax for these employees.  Employment status is not a black and white test, but rather a facts and circumstances analysis which leaves a lot of uncertainty.  It can be difficult for employers to navigate this world, and if done incorrectly can create problems including taxes and penalties if they are ever audited.  If you have questions about employee status or a payroll audit through the IRS or EDD, contact us at Hone Maxwell LLP today.  Also,  you can follow us on twitter @HMLLPTax or facebook at for more tax tips and the latest updates on tax news.

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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