A Name, Image and Likeness (NIL) Deal allows college athletes the ability to make money off endorsements, social media, and their personal brand without jeopardizing their ability to play.
It's a shift in eligibility with the NCAA rules that can be tricky to navigate when it comes to taxes.
Tax Implications of NIL Income
All income from NIL activities is considered taxable income by the IRS, including both cash payments and non-cash (like free merch or travel) valued at its market worth.
- Federal Income Tax: NIL earnings are subject to federal income tax at the athlete's personal income tax rate.
- Self-Employment Tax: Student-athletes are considered independent contractors for tax purposes. Their net earnings of $400+ from self-employment activities are subject to self-employment tax (Social Security and Medicare taxes).
- Estimated Tax Payments: Since taxes aren't usually withheld from NIL earnings, athletes might think about making quarterly estimated tax payments to the IRS to avoid penalties.
What to Report
Student-athletes should receive a Form 1099-NEC from any income source that pays them in a year. However, even if they don't receive a form, they are still required to report all income to the IRS.
- Form W-9: Student-athletes typically complete a Form W-9 for each business they work with to provide their taxpayer identification number.
- Schedule C: Self-employment income and related expenses are reported on a Schedule C, Profit or Loss From Business, which is filed with their 1040 Form.
- Deductions: Like most people considered self-employed folks, athletes can deduct business expenses (agent fees, travel for appearances, webhosting costs, and marketing expenses), to lower their taxable income.
Impact on Financial Aid
NIL income is included in the taxable income reported on the Free Application for Federal Student Aid (FAFSA), which could potentially impact the amount of financial aid a student-athlete receives.
WATAX can help sort through the complexity of these tax situations and make sure you keep as much of the NIL income you'd worked for!
