Protecting Student Athletes Act

Summary#

This bill would change the Internal Revenue Code to require income tax withholding on name, image, and likeness (NIL) payments made to student athletes who are treated as independent contractors. The bill adds a new subsection to section 3402 to treat NIL payments as if they were wages for withholding purposes and sets the default withholding rate at 30 percent. Non-cash payments would be withheld on based on their fair market value at transfer. The bill defines "student athlete" (full-time student making satisfactory progress and participating in intercollegiate competition or varsity sports) and refers to the Higher Education Act definition for "institution." The bill says withholding does not determine whether someone is an employee. A payee may elect to opt out of the withholding rule and keep that election until they terminate it. The bill also adds a limited waiver of the underpayment penalty for "new student athletes" under section 6654(e). The withholding rule would apply to payments in tax years beginning after December 31, 2027. The Secretary of the Treasury must write regulations and must report to Congress by December 31, 2029 on the effects of the withholding rule, including costs and benefits, whether the 30% rate was accurate or beneficial, and payor compliance.

What it means for you#

• If you pay a student athlete for use of their name, image, or likeness, you would generally be required to withhold 30% of the payment and remit it to the IRS, even if the athlete is an independent contractor.
• If payment is non-cash (property or services), you must withhold 30% of the fair market value when the payor transfers it.
• Student athletes who receive NIL payments could see automatic withholding taken from those payments unless they make and maintain an election to opt out.
• The withholding rule is not meant to change whether someone is legally an employee or independent contractor for other tax purposes.
• A limited waiver of the underpayment penalty is provided for new student athletes under certain conditions.
• The rules become effective for payments made in tax years starting after December 31, 2027, and the Treasury must report to Congress by December 31, 2029 on effects and compliance.

Expenses#

No publicly available information.

Proponents' View#

The bill is titled to "protect student athletes from unexpected tax liability." The bill’s changes and the required IRS report indicate proponents want automatic withholding on NIL payments and a waiver for some new student athletes to reduce surprise tax bills and to study whether the 30% rate and withholding approach work well.

Opponents' View#

No publicly available information.