S. 3378: Helping Undergraduate Students Thrive with Long-Term Earnings Act

This bill, known as the Helping Undergraduate Students Thrive with Long-Term Earnings Act (HUSTLE Act), proposes changes to the Internal Revenue Code to create NIL (Name, Image, and Likeness) investment accounts specifically for student-athletes. Below is a summary of the key components and provisions of the bill:

NIL Investment Accounts

The bill establishes a new type of investment account called an NIL investment account that would provide tax advantages for eligible student-athletes. Here are the main points:

• Tax Exemption: Contributions to these accounts would be exempt from federal income tax, although they would still be subject to certain unrelated business income taxes.
• Eligibility: An eligible athlete is defined as a student currently enrolled in a higher education institution who participates in an amateur or collegiate athletic program.
• Qualified NIL Income: The funds contributed to these accounts must come from qualified NIL income, which includes earnings from endorsements, appearances, social media, and other similar activities related to the athlete's personal brand.
• Contribution Limits: There will be limits on the contributions that can be made annually to these accounts, capped at the annual gift tax exclusion amount. Contributions cannot be made after the fifth taxable year of receiving NIL income or when the athlete is no longer enrolled.
• Tax Treatment: Contributions to the accounts may be excluded from gross income, and distributions taken after the athlete graduates or transfers to a non-participating institution may receive preferential tax treatment.

Distributions and Conditions

The regulation of distributions from an NIL investment account includes:

• Taxation on Withdrawals: Distributions will generally be included in gross income but may be taxed at lower capital gains rates, provided certain conditions are met.
• Qualified Expenses: Funds can also be used for career transition costs, higher education expenses, and medical expenses subject to specific guidelines.
• Transfer and Rollovers: Rules are established for transferring amounts between accounts or changing beneficiaries, as long as conditions are met.

Reforms for Athlete Agents

The bill includes amendments to the Sports Agent Responsibility and Trust Act to strengthen regulations concerning athlete agents:

• Registration Requirement: Athlete agents must register with states before representing student-athletes for endorsements, ensuring compliance with state laws.
• Fee Limits: Fees that agents can charge will be capped at 5% of the endorsement contract value.
• Accountability Measures: The bill establishes penalties for agents who misrepresent or violate rules, allowing student-athletes to seek legal remedy for violations.

Educational Requirements

The bill also requires that educational resources be provided to student-athletes regarding:

• The operation and benefits of NIL investment accounts.
• Basic financial planning and investment principles.
• The importance of long-term financial security.

Regulatory Authority

The Secretary of the Treasury is granted the authority to create regulations necessary to implement and enforce these provisions, which include defining criteria for eligible athletes, managing account transfers, and preventing fraud.

Effective Date

The provisions of the bill would go into effect for taxable years beginning after December 31, 2025.

Relevant Companies

• NKE (Nike, Inc.): As a major brand involved in endorsements and sponsorships, Nike could be affected by more widespread usage of NIL accounts by student-athletes.
• ADBE (Adobe Inc.): With increasing demand for content creation and social media engagement among athletes, Adobe's software could see greater demand as athletes promote their NIL activities.
• GS (Goldman Sachs Group, Inc.): Financial services firms like Goldman Sachs may experience increased business opportunities related to managing NIL investments for student-athletes.