Depending on what poll you look at, either a plurality or majority of Americans disapprove of the tax changes set to be signed into law by President Donald Trump in the very near future.
That disapproval largely stems from the massive corporate tax cuts the soon-to-be law will induce and the lack of lower and middle-class tax relief. But while businesses are getting a huge tax break, college athletic departments are not. In fact, athletic departments will be paying thousands, if not millions, in new taxes.
Like other non-profit organizations, colleges will be responsible for paying a 21% excise tax on annual compensation above $1 million that goes to any of the organization’s five most highly compensated employees. The tax is set to take effect on compensation earned, beginning Jan. 1. It also will be applied to certain types of what the legislation calls “parachute payments,” or separation payments like a buyout. At many FBS schools, coaches and/or the athletic director are among the institution’s five highest-paid employees and making more than $1 million.
Ten college football coaches made $5 million or more in 2017. At the 21% tax rate, their schools would be on the hook for at least $1 million in taxes for each of those salaries.
If you find it hard to get worked up over schools getting taxed on the massive salaries it pays for coaches and administrators, consider the following.
Athletic departments rely on lots of fundraising and other outside revenue like ticket sales and television money to help balance their budgets. And there aren’t too many departments that have the benefit of budget surpluses.
So those that need to make ends meet will have to make some cuts. And those cuts will probably come from programs that aren’t revenue drivers like football and men’s basketball. We’ll be passed out in the floor from shock if coach salaries decrease accordingly to help schools pay the new tax. Instead, we’re bracing for future stories about athletic department cuts to other sports, especially at schools without large donor and alumni bases.
Schools may have to work harder to raise funds too as boosters’ tax returns will also be affected by the new tax code. Right now, the donations to athletic departments fans make to secure tickets and suites can be largely deducted if people itemize their deductions. That deduction is going away and some fans could decide to stop donating as a result.
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