Understanding NIL Income: Tax Implications for College Athletes

With the NCAA’s decision to allow student-athletes to profit from their Name, Image, and Likeness (NIL), many athletes are earning money through brand deals, social media promotions, and public appearances. While this is great news, it also means you’ll need to handle taxes on that income. Here’s a simple breakdown of what you need to know.

What Is NIL Income?

NIL income is any money or gifts you earn from allowing others to use your name, image, or likeness. This can include:

• Brand deals (sponsorships, ads)
• Social media promotions
• Appearances and signings
• Gifts or merchandise

Even gifts (like free clothes or gift cards) are taxable, so you need to report their value.

How Do You File Taxes?

As a student-athlete earning NIL income, you’re considered an independent contractor. This means you have to file taxes like a small business owner. Here’s what you need:

• Form W-9: Gives your taxpayer info to those paying you.
• Schedule C: Reports your NIL income and business expenses.
• Schedule SE: Calculates self-employment taxes (Social Security and Medicare).

You’ll need to file a return if your NIL income exceeds $400 or your total income is above the standard deduction.

Quarterly Taxes: Plan Ahead

Since taxes aren’t automatically taken out of your NIL income, you’ll need to pay estimated taxes four times a year. This helps you avoid penalties when tax season comes. You can use Form 1040-ES to make payments.

Deducting Business Expenses

You can lower your taxable income by deducting business-related expenses, like:

• Travel and lodging for appearances
• Equipment (cameras, computers for content creation)
• Marketing and legal fees
• Meals for business purposes

Keep good records of these expenses to make the most of your deductions.

State Taxes: Know Your Rules

Each state has its own tax rules, and some may tax NIL income differently. If you earn money in multiple states, you may need to file taxes in each one.

How NIL Affects Financial Aid

If you’re receiving financial aid, your NIL income must be reported on the FAFSA. This could impact your eligibility for need-based aid, so be aware of how your extra income might affect your financial situation.

Things to Know About NIL Taxes

1. You’re Still a Student: Even though you’re earning money, your NIL income doesn’t change your status as a student. However, you’re still required to report it to the IRS.
2. The IRS Doesn’t Care How You Get Paid: Whether it’s cash, gifts, or other non-cash items, all income you receive in exchange for your NIL is taxable. Don’t forget to report it!
3. Self-Employment Tax: As an independent contractor, you’re responsible for both the employee and employer portions of Social Security and Medicare taxes. This is a combined rate of 15.3%.
4. Keep Detailed Records: The more organized you are with your financial records, the easier your tax filing will be. Keep receipts, contracts, and any communication related to your NIL deals.
5. NIL Is Separate from Your Scholarship: While you can profit from your NIL, your athletic scholarship money is separate. Scholarships are generally not taxable unless they exceed the amount of your qualified expenses (tuition, books, etc.).

Tips for Managing Your NIL Income

• Get Professional Help: Consider working with a tax expert who understands student-athlete finances.
• Stay Organized: Use accounting tools or spreadsheets to track your income and expenses.
• Save for Taxes: Set aside a percentage of your earnings for taxes throughout the year.

Final Thoughts

Managing NIL income can be tricky, but staying organized and understanding your tax responsibilities will help. By planning ahead, keeping good records, and working with Barbee Tax Consulting, you can focus on growing your brand without worrying about tax problems. Feel free to reach out to us at (708) 405-2112.