Sewell Legislation Would Shield Student Athletes From Surprise NIL Tax Bills

West Alabama Democratic Congresswoman Terri Sewell has joined Illinois Democratic Congressman Danny Davis in filing the Protecting Student Athletes from Unexpected Tax Liability Act.

If passed, the bill would amend the Internal Revenue Code of 1986 to require 30% income tax withholding to be managed by the person or entity paying college athletes for name, image and likeness. The players are considered independent contractors.

The legislation would not apply to state income taxes.

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In a Facebook post, Sewell wrote, "As we cheer on our amazing student-athletes, I'm introducing legislation to protect them from unexpected NIL tax bills. We must give these players the tools and protections they need to build a strong financial future. Wishing them the best of luck this season!!"

The IRS typically considers cash and noncash NIL compensation taxable income under the current code. The bill changes how student athletes receive money from deals involving their name, image and likeness. Currently, many athletes receive the full amount and must save for taxes on their own. This plan requires payees to withhold 30% for taxes immediately, similar to how a standard job works.

Sewell's legislation would cover cash payments and other items such as cars or equipment. If an athlete receives a gift instead of cash, the company must determine its value and withhold 30% of that amount. This helps students avoid being hit with a large tax bill they might not have the cash to pay.

"I have heard troubling stories of student-athletes who were unaware of their tax obligations and later found themselves facing significant tax bills and penalties from the IRS after much of their NIL income had already been spent," Sewell said when introducing the legislation.

Some critics complain the bill does not have broad backing because the flat 30% withholding treats every athlete as if they owe the same tax rate, even though many student athletes fall into lower tax brackets. They also point to new compliance burdens that could result in individuals and companies dropping out of NIL deals. The opt-out option is also seen as too confusing. Others complain that the legislation gives athletes options the average taxpayer does not have and continues to treat athletes as though they are special.

If approved, the government would review the program by the end of 2029 to see if it is working or needs to be adjusted.

The bill has been referred to the House Ways and Means Committee. The committee is currently reviewing the legislation, but no action has been taken since last Wednesday. The committee must decide whether to hold a vote on the proposal before it can proceed further.