NIL: What Student Athletes Need to Know About Income, Taxes & Earnings

The rise of Name, Image, and Likeness (NIL) deals has transformed the way student athletes can profit from their athletic careers. Since 2021, the NCAA has allowed college athletes to monetize their presence through endorsements, brand deals, and various other opportunities. While this is an exciting time for athletes, it’s also a complex one, as NIL comes with new income stream, and, of course, new tax obligations. Here’s everything you need to know about navigating the world of NIL, including your tax responsibilities and how to manage your earnings.

What is NIL and How It Impacts Student Athletes' Income and Taxes

NIL refers to the ability of student athletes to earn money from their name, image, and likeness. Prior to 2021, college athletes were restricted from profiting off their athletic status. With NIL, however, athletes can sign endorsement deals, promote products on social media, hold autograph signings, create personal brands, and even host camps or clinics. Essentially, athletes now have the same rights to their name and image that celebrities have always enjoyed.

The opportunities for athletes to earn are diverse. Some examples include:

• Endorsement Deals: Partnering with brands to promote products.

• Social Media Partnerships: Earning money through sponsored posts or affiliate marketing.

• Autograph Signings: Charging for public appearances or autograph sessions.

• Content Creation: Earning through platforms like YouTube, TikTok, and podcasts.

• Licensing Deals: Allowing companies to use your name, image, or likeness in products, advertisements, and video games.

While NIL opens up countless doors, it also brings a few important financial considerations,  particularly taxes.

The Impact of NIL on Your Taxes

As exciting as NIL earnings can be, it’s crucial to understand that the money you make through these deals is subject to federal and state taxes. Since NIL income is usually considered self-employment income, it is subject to both income taxes and self-employment taxes. Let’s break this down.

Self-Employment Tax

When you receive NIL income, it is often classified as self-employment income. This means you'll be required to pay self-employment tax, which includes Social Security and Medicare taxes. The self-employment tax rate is 15.3% on net income. Fortunately, you can deduct half of the self-employment tax when calculating your taxable income, but it’s still a cost you need to be aware of.

For example, if you earn $5,000 from an NIL deal, you’ll pay 15.3% in self-employment tax, in addition to regular income taxes. So, not only do you owe income taxes on that $5,000, you’ll also need to account for the 15.3% self-employment tax.

Income Taxes

In addition to self-employment taxes, NIL earnings are subject to federal income tax. This means the money you make from NIL activities should be included in your overall income when you file your taxes. If you received payments of $600 or more from any one source, the payer is required to send you a 1099-NEC form, which outlines the amount of money you earned.

Remember, NIL income is cumulative with any other income you have, including your wages from a regular job. If your NIL earnings push you into a higher tax bracket, you’ll be taxed at that higher rate.

State Taxes and the "Jock Tax"

In addition to federal taxes, you also need to consider state taxes. If you live in a state with income tax, you’ll owe taxes on your NIL earnings in that state. The tricky part is when you travel to other states for events, endorsements, or appearances. Some states apply the "jock tax", meaning that non-residents can be taxed for income earned while visiting that state.

For example, if you travel to California to appear at a sponsored event, you may owe state taxes in California, even if you don’t live there. States have different rules for determining whether you owe taxes, so it’s essential to keep track of where you earn income and how much you make in each state.

Practical Tips for Managing Your NIL Earnings

Given that NIL income is often treated as self-employment income, it’s up to you to manage your finances and tax obligations. Here are some actionable steps to keep your finances in order:

Set Aside Money for Taxes

Since taxes are not automatically withheld from NIL income, you need to set aside money to pay them. A good rule of thumb is to put 25-30% of your NIL earnings into a separate account for taxes. This way, when it’s time to pay, you won’t be caught off guard.

Pay Estimated Taxes Quarterly

If your NIL earnings are substantial, it’s a good idea to pay estimated taxes quarterly. Use IRS Form 1040-ES to make these payments. This will help you avoid underpayment penalties at the end of the year and ensure that you stay on top of your tax obligations. If you don’t have any withholding from a W-2 job, estimated tax payments can help you avoid surprises when filing your taxes.

Track Your Earnings and Expenses

Keep detailed records of all NIL earnings, including payments made through platforms like Venmo or Zelle. Also, track any expenses related to your NIL activities, such as travel, equipment, and marketing costs. These expenses can potentially be deducted from your taxable income, reducing the amount you owe in taxes. It’s important to keep receipts and maintain organized records.

Consult a Tax Professional

Because NIL income and taxes can be complicated, it’s a good idea to work with a tax professional who has experience with self-employment and student-athlete tax situations. They can help you understand your obligations and find ways to reduce your tax liability. They may also guide you on whether you should be filing in multiple states due to the jock tax.

Navigating Financial Aid and NIL

If you’re receiving financial aid, it’s important to note that NIL earnings are considered part of your taxable income. This means that your NIL earnings could affect your FAFSA application and reduce the amount of financial aid you’re eligible for.

If you’re planning to use your NIL income for future expenses, like school or business ventures, keep in mind that it can impact the financial aid calculations.

Planning for the Future

NIL is an incredible opportunity for student-athletes to capitalize on their personal brand, but it comes with the responsibility of managing taxes and finances. Start by setting aside money for taxes, tracking your income and expenses, and consulting a tax professional to ensure you’re compliant with all tax laws. By managing your earnings wisely, you can take full advantage of NIL opportunities while avoiding financial pitfalls down the road.

If you’re just starting your NIL journey or already earning significant income, planning ahead is key to making the most of this new era of college athletics. And don’t forget, this is about more than just taxes. It’s also about creating a financial plan that sets you up for long-term success.