NIL Taxes: What College Athletes Need to Know

In recent years, the world of college sports has experienced a significant shift with the introduction of Name, Image, and Likeness (NIL) deals. Athletes are now able to monetize their personal brands, which has opened doors to sponsorships, endorsements, and other lucrative opportunities. While this is an exciting development, it also brings new financial responsibilities, particularly when it comes to taxes. Let’s break down what college athletes should know about NIL income and taxes.

Call Turner Business Solutions at (316) 285-0125 to speak to a tax professional that can assist with NIL taxes. You can also schedule a free consultation online.

What Is NIL?

NIL stands for Name, Image, and Likeness, which refers to an athlete’s ability to profit from their personal brand. For decades, college athletes were prohibited from receiving compensation for their athletic achievements or personal brand, but that changed in 2021 when the NCAA allowed athletes to enter into NIL deals. Now, college athletes can sign endorsement contracts, appear in advertisements, sell merchandise, and leverage their social media presence for financial gain.

NIL Income Is Taxable

One of the first things athletes need to understand is that any income earned through NIL deals is taxable. Whether you receive payments in cash, gifts, or other compensation, the IRS considers this taxable income, meaning athletes must report it on their tax returns. Failing to do so can result in penalties, interest on unpaid taxes, and possibly even an audit.

Types of Taxes on NIL Income

1. Federal Income Tax: Any NIL earnings are subject to federal income tax. Depending on how much income is earned, athletes could fall into higher tax brackets, resulting in a greater portion of their income going to taxes.

   
   

2. State Income Tax: NIL income is also subject to state taxes. The amount you owe depends on the state where you live and whether that state has an income tax. Some states have no income tax, while others have rates that can significantly affect take-home earnings.

   
   

3. Self-Employment Tax: Athletes earning money through NIL deals are considered independent contractors, meaning they are responsible for paying self-employment taxes. These taxes cover Social Security and Medicare and are currently set at 15.3%. Unlike traditional employees, NIL athletes do not have an employer to share these costs.

   
   

Deductions and Expenses

Fortunately, athletes can reduce their tax liability by claiming business deductions. Common expenses that might be deductible include:

• Marketing expenses: Money spent on promoting your brand, such as hiring a social media manager or running paid ads.

  
  

• Equipment and gear: Any equipment used in the course of creating content or promoting a brand can be deducted.

  
  

• Travel expenses: If travel is required for an endorsement deal or to attend promotional events, these expenses can often be deducted.

  
  

Proper record-keeping is essential. Athletes should save receipts and maintain detailed records of any expenses related to their NIL activities.

Filing Quarterly Taxes

Because NIL athletes are classified as independent contractors, they are responsible for paying estimated quarterly taxes. This ensures that taxes are being paid throughout the year rather than in one large sum at the end of the year. Missing these payments can result in penalties.

Hiring a Tax Professional

For many athletes, the complexities of NIL income and self-employment taxes can be overwhelming. Hiring a tax professional or accountant with experience in sports and entertainment can be invaluable. They can help with proper tax planning, ensuring all deductions are taken, and avoiding costly mistakes.

Turner Business Solutions can assist college athletes navigate the complexities of NIL taxes. Give us a call at (316) 285-0125 or schedule a free consultation online.

NIL and College Scholarships

One common question is how NIL income affects financial aid and scholarships. In most cases, NIL earnings do not directly impact an athlete’s ability to receive athletic scholarships. However, athletes should be aware that NIL earnings could affect need-based financial aid, as this income might be counted in financial aid formulas used by colleges.

Conclusion

While NIL opportunities offer tremendous financial benefits, they also come with new tax responsibilities. College athletes need to understand that any NIL income is taxable and prepare accordingly by paying quarterly taxes, keeping track of business expenses, and possibly hiring a tax professional. With proper planning and financial management, athletes can maximize the benefits of their NIL deals while staying in compliance with tax laws.

Understanding the tax implications of NIL income is crucial for any athlete looking to benefit from their personal brand without facing financial surprises.

Call Turner Business Solutions at (316) 285-0125 or you can schedule a free consultation online.