May

15

2025

How New IRS Rules Could Impact NIL Athletes

Posted by: Nisiar Smith 5.15.25

How New IRS Rules Could Impact NIL Athletes

Introduction

The NIL (Name, Image, and Likeness) era has redefined college sports. Student-athletes are now able to monetize their brands through sponsorships, appearances, and content creation, earning thousands or even millions before ever turning pro.

But while NIL deals have created massive financial opportunities, they’ve also brought serious complexity, especially when it comes to taxes.

Now, with the IRS releasing new guidance and increased scrutiny on NIL income, athletes can no longer afford to treat taxes as an afterthought. The stakes are high, and missteps can lead to audits, penalties, or unexpected debt.

In this article, we’ll break down:

  • The latest IRS guidance on NIL
  • Why NIL income is under more scrutiny
  • What counts as taxable NIL compensation
  • Steps college athletes should take now to stay compliant


1. Why the IRS Is Cracking Down on NIL Income

Since July 2021, when the NCAA lifted restrictions on NIL earnings, the flow of money into college athletics has exploded. By some estimates, the NIL market has surpassed $1.2 billion annually, spanning deals from $500 micro-influencer promos to multi-million-dollar brand partnerships.

But here’s the issue: Much of this money is going unreported.

Many student-athletes:

  • Don’t realize they owe taxes
  • Aren’t setting aside money for tax payments
  • Fail to report “non-cash” compensation like free gear or travel
  • Use peer-to-peer apps (Venmo, Cash App) with no documentation

The IRS has taken notice and is preparing to enforce stricter compliance measures across the board.


2. What the New IRS Rules Say

In 2023 and 2024, the IRS began clarifying how it will treat NIL income, and the key message is simple:

  • All NIL income is taxable, whether it’s cash or non-cash, and must be properly reported.

Key highlights from recent IRS guidance:

📌 NIL Is Considered Self-Employment Income

Athletes earning NIL money are treated as independent contractors. That means:

  • You are running a business
  • You must report all income
  • You are responsible for both income and self-employment taxes
📌 Non-Cash Compensation Must Be Valued and Reported

If you receive:

  • Free clothing or shoes
  • Event tickets
  • Travel packages
  • Equipment or tech gear

...you must report the fair market value of those goods as income.

📌 Payment Platforms Will Report More Activity

With the new $600 reporting threshold for third-party apps like Venmo, Cash App, PayPal, and Zelle:

  • These platforms will issue 1099-K forms to athletes receiving payments
  • The IRS will now see what you earn, even if you weren’t issued a traditional 1099-MISC

This is a major shift from past years when small transactions often flew under the radar.


3. What Counts as Taxable NIL Income

Here’s a breakdown of what’s considered taxable NIL income by the IRS:

💵 Cash Payments

  • Sponsored social media posts
  • Brand endorsements
  • Event or appearance fees
  • Coaching, camps, and personal training

🏷️ Non-Cash Compensation

  • Free or discounted products (clothing, supplements, electronics)
  • Gift cards
  • Travel, hotel, and food costs paid by sponsors
  • Any form of barter or trade exchange

📱 Social Media Monetization

  • YouTube ad revenue
  • TikTok creator fund payments
  • Affiliate marketing commissions

In short, if you received value in exchange for your NIL, it’s likely taxable.


4. Common Tax Mistakes NIL Athletes Are Making

  • Not Reporting All Income

Assuming that cash apps or “small” deals don’t count can lead to underreporting, one of the biggest IRS red flags.

  • Not Setting Aside Tax Money

Without employer withholding, athletes are expected to save and pay their own taxes. Many are surprised by how much they owe.

  • Ignoring Non-Cash Deals

A free pair of sneakers might not feel like income, but the IRS considers it one.

  • Failing to File Quarterly Taxes

Once you earn over $1,000 from NIL, you’re supposed to start paying estimated quarterly taxes.


5. How NIL Athletes Should Prepare Now

The good news? Staying compliant isn’t hard, it just takes planning. Here’s what every athlete should do:

1. Open a Separate Bank Account

Keep NIL income separate from personal funds. This helps with record-keeping and preparing for taxes.

2. Track Every Deal and Expense

Use spreadsheets, QuickBooks, or accounting software to document:

  • What you earned
  • How you received it
  • What you spent on related business activities

3. Save 30–40% of All Earnings for Taxes

That may seem like a lot, but between federal, state, and self-employment taxes, it adds up quickly.

4. File Quarterly Tax Payments

Estimated tax deadlines:

  • April 15
  • June 15
  • September 15
  • January 15 (following year)

Missing these can result in penalties and interest.

5. Work With a CPA or Tax Advisor

Hire someone who understands athlete taxation and can help you:

  • File on time
  • Maximize deductions
  • Avoid penalties


6. What Deductions Are NIL Athletes Eligible For?

Yes being self-employed comes with tax advantages. You can deduct legitimate business-related expenses, including:

  • Cell phone/internet (if used for NIL)
  • Laptop or camera for content creation
  • Travel for promotional appearances or brand events
  • Apparel used in content (under specific IRS rules)
  • Legal, marketing, or accounting fees
  • Subscriptions or education platforms for content marketing or financial education

Always keep receipts and documentation for any claimed expense.


7. How This Impacts Financial Aid and Scholarships

Athletes should also know that increased income:

  • May affect need-based financial aid
  • Could impact eligibility for certain housing or meal stipends
  • Might require updating FAFSA or institutional aid forms

Work with your school’s financial aid office to understand the full impact.


8. IRS Enforcement: What Happens If You Don’t Comply

Failure to report or file taxes on NIL income can lead to:

Audits

The IRS can review up to 3 years of income, and if they find underreporting, they may dig deeper.

Penalties

Late or underpaid taxes come with steep penalties and interest.

Legal Action

Intentional fraud or evasion could trigger serious legal consequences, not just financial.


9. NIL & the Bigger Financial Picture

NIL is a major opportunity, but it’s also just the beginning. Athletes who manage it correctly can:

  • Build credit
  • Save for long-term goals
  • Launch businesses or invest
  • Create a strong financial foundation for life beyond sports

But that requires treating NIL like the business it is.


Conclusion: Knowledge = Power

The IRS has made it clear: NIL income is business income, and student-athletes must act accordingly. The days of unreported income and last-minute tax filings are over. But with education, structure, and the right support, taxes don’t have to be a burden, they can be a stepping stone to long-term financial success.

Ready to build a plan that keeps you compliant and sets you up for wealth?

Let’s talk. I help athletes navigate NIL with strategy, structure, and financial confidence.