College football fans in Utah know injuries are part of the game. Whether you’re watching BYU in Provo, Utah at Rice-Eccles Stadium, or Utah State in Logan, it isn’t unusual to see a player leave the field and immediately start wondering not just when he will return, but what recovery will require.
A provision recently added to the federal Protect College Sports Act is intended to provide athletes with greater protection from the financial consequences of those injuries. But the National Taxpayers Union Foundation is raising an interesting question: Could Congress inadvertently turn some of those medical benefits into taxable income?
Under the Senate-passed legislation, athletic departments with more than $20 million in annual revenue would be required to cover athletes’ out-of-pocket medical costs for injuries or medical conditions related to their participation in college athletics. Coverage could continue for up to five years after an athlete finishes competing and, in certain cases involving lifelong conditions, even longer. Smaller athletic programs would have access to a fund the NCAA would be required to establish.
The goal is straightforward: an athlete who suffers a serious knee injury, concussion or other sports-related medical problem shouldn’t be left with a stack of medical bills after helping fill a stadium on Saturday afternoon.
The tax treatment, however, may not be so simple.
NTU notes that federal tax law generally excludes employer-provided health benefits from taxable income. College athletes, however, generally are not treated as employees of their universities. Depending on exactly how a school pays an athlete’s medical expenses — direct reimbursement, paying doctors directly, providing insurance or establishing another medical plan — the IRS could potentially treat different arrangements differently. State tax agencies could also reach different conclusions.
That could create a bizarre result: Congress provides an injured athlete with additional medical protection, only for the athlete to discover that some portion of the benefit has generated a tax obligation.
NTU argues the solution could be relatively simple. Congress could clarify that medical benefits provided under the legislation qualify for the existing federal exclusion for certain accident and health benefits.
For Utah college football fans, it’s an interesting reminder that even legislation aimed primarily at protecting athletes can create unexpected tax questions.
Read Andrew Wilford’s full analysis at the National Taxpayers Union Foundation: The Protect College Sports Act Might Have Added Tax Insult to Injuries