Obviously, NIL is taxable but scholarships are as well? I'm sure historically there was some IRS carve out, but I cannot see why they wouldn't be, especially now.
I'm sure this is a stupid question.
I'm sure this is a stupid question.
Probably Silly Question but why arent scholarships taxable
- Thread starter GilliganIsland
- Start date
A couple of slight corrections:
The exemption for scholarships is the work of Congress. It is contained in Internal Revenue Code section 117.https://www.law.cornell.edu/uscode/text/26/117
The exemption only covers amounts received for tuition and fees, plus books, supplies and required equipment. Thus amounts received to cover room and board are taxable. https://www.irs.gov/taxtopics/tc421
The exemption for scholarships is the work of Congress. It is contained in Internal Revenue Code section 117.https://www.law.cornell.edu/uscode/text/26/117
The exemption only covers amounts received for tuition and fees, plus books, supplies and required equipment. Thus amounts received to cover room and board are taxable. https://www.irs.gov/taxtopics/tc421
The distinction is that scholarships are like gifts, and gifts are not taxable to the recipient. With NIL, by contrast, the recipient is doing or has done something in exchange for the payment, so NIL is like wages.
This is not a stupid question and I have been asking it for 30 years.
It because government allows it
Do payments for NIL come with a referral for a CPA? Seriously, maybe some of board tax experts can chime in. It's beyond my area of expertise.
Per a quick internet search, "According to the IRS, when generating NIL income, college student-athletes are independent contractors, and their NIL income is self-employment income." So are they subject to paying quarterly taxes, self-employment tax (i.e. FICA and Medicare) etc.? If so, what are some of these kids really netting out of their NIL payments?
Here's an unofficial guide for the self-employed. I see no reason why it wouldn't apply to NIL recipients. Yes, FICA and Medicare taxes must be paid on net earnings. Yes, estimated tax must be paid if necessary just like with other taxpayers.
https://www.nerdwallet.com/article/taxes/self-employment-tax OTOH, there is a "qualified business income" deduction. https://www.nerdwallet.com/article/taxes/qualified-business-income-deduction Other deductions are also available. https://www.nerdwallet.com/article/taxes/self-employment-tax-deductions The kid is going to need an accountant for sure.
Scholarships are funded by after tax charitable giving. While that giving reduces your tax basis it’s still mostly been taxed. So it’s actually a good policy not to double tax giving and why endowments and foundations don’t pay tax subject to rules.
It’s also good point when you are thinking about how much these kids were already making. 50k a year is paid after tax for most people. If all in costs are really closer to 100k a year than than pretax it’s more like 150, so all in they are making 600k over their college careers.
It’s also good point when you are thinking about how much these kids were already making. 50k a year is paid after tax for most people. If all in costs are really closer to 100k a year than than pretax it’s more like 150, so all in they are making 600k over their college careers.
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You leave college and enter “real” world debt free while many stress over paying back loans vs new car , apartment/house , starting a family ect ect ect
Right. Now a kid who will never play professionally is making another 100k a year. Not to mention the shift of focus from academics to marketing oneself.
Paying your kids education out of pocket is also not taxable to the kid and is an unlimited gift….
And prior to NIL, student athletes weren't allowed to make any income. As long as the room and board stayed below the taxable income threshold, they weren't taxed at all.
Thank you.
I wonder if in the scope of how college sports is changing one day the IRS will re-examine. Crazy fact I learned last week....the NFL is a tax exempt organization
It would be for Congress to re-examine. But I don't see why. The principle is that gifts are tax-exempt to the recipient, but earning is taxable. Scholarships and NIL are in accord with that principle.
A little more detail - just for educational purposes.
So if I pay Rutgers tuition directly for my child - I can deduct it?
That's good to know.
My initial thought was "gift" (against annual and lifetime gifting allowance) to my child then have them pay it directly.
There is a federal tax credit(called the American Opportunty Tax Credit (AOTC)) of up to $2500 for paying educational expenses for a taxpayer or his/her dependent child. https://www.irs.gov/credits-deductions/individuals/education-credits-questions-and-answers There is a separate lifetime learning credit, but it can't be claimed at the same time as the AOTC.https://www.marca.com/en/lifestyle/us-news/personal-finance/2023/03/19/64172f4e22601de63d8b458a.html As you probably know, a credit is different from a deduction. A credit reduces your taxes dollar-for-dollar, while a deduction only reduces your taxable income so that if, for instance, you are in the 33% bracket, you save 33% of the deduction on your taxes.
NIL and scholarships are different. Again, scholarships are not taxed because they are comprised of gifts from donors whose are already taxed. They save on a portion of the gift but it is still after tax money. NIL is income which can come from a company that would record this an an expense.
Same should hold true for the kid on academic scholarship who had a job outside of this. He is taxed on outside earnings.
Back in the day when I was an RU employee I got free tuition for grad school courses- not taxable
I literally asked a question about if they are and why not? Because I was curious on the difference. There are twenty responses which interpreted it this way
In the thread analyzing NIL money it was repeated it was taxable soooo (buckle up) that got me thinking if scholarships are taxable soooo I asked
Nor are athletic scholarships l. They all come from donations that are in the endowment. After tax money that funds tuition for various purposes. Academic and athletic
It doesn't matter where the scholarship money comes from and, as you say, it doesn't matter if the scholarship is academic or athletic.
Well it has to come from somewhere. Where else will it come from other than donations? I suppose it could be tuition paid from one student going to another but the vast majority comes from donations which go into endowments and fund scholarships into perpetuity.
You're right --- although I do know of a law school whose tuition was so high it ran at a profit and so it could give scholarships to those it considered deserving -- but scholarship money is exempt from tax no matter where the money comes from.
The difference as been highlighted relates to charitable giving and the nations long standing principle of advocating for a giving society. Further. Scholarship money was already taxed before it became scholarship money. Giving someone income beyond the cost of going to school places it in a whole other place. That being said, I don’t for a second think it’s out of reach in this political climate.
A regressive tax is a tax that falls more heavily on low-income than high-income individuals. I think @MiloTalon13 is suggesting that taxing scholarships would be regressive because most scholarship is need-based aid and so it goes more to low- and middle-income kids than to high-income kids.