Apr
24
2025
The Truth About Taxes on NIL Money: What Every College Athlete Needs to Know
The Truth About Taxes on NIL Money: What Every College Athlete Needs to Know
Introduction
The Name, Image, and Likeness (NIL) era has opened a new chapter in college athletics. For the first time, student-athletes can earn significant income while still enrolled in school; signing endorsement deals, monetizing social media, launching brands, and hosting camps.
But as the checks come in, so do new responsibilities. Chief among them? Taxes.
Many student-athletes are unaware that NIL income is fully taxable and failing to plan for it can lead to unexpected debt, penalties, or even legal trouble. The IRS doesn’t care how young you are or how new this is. If you’re making money, you’re expected to report it properly.
In this article, we’ll break down: Why NIL income is taxable
- What types of NIL earnings are subject to taxes
- The most common tax mistakes athletes make
- How to stay compliant and keep more of what you earn
1. Why NIL Money Is Taxable
The IRS Sees You as a Business
When you receive payment for endorsement deals, social media posts, or personal appearances, the IRS considers you a self-employed individual, which means you're running a business in the eyes of the government.
This is different from a traditional W-2 job, where taxes are automatically withheld. As a self-employed athlete:
- You must report all income yourself
- You’re responsible for paying your own taxes
- You may owe both income tax and self-employment tax (Social Security & Medicare)
Even if you're under 18, still in school, or think the amount is small, it’s still taxable.
2. Types of NIL Income That Are Taxable
Almost all forms of NIL income are subject to taxes, including:
Cash Payments
This includes money paid directly to you for:
- Endorsements
- Sponsored posts
- Brand deals
- Appearance fees
Non-Cash Compensation
Even if you're not paid in cash, products and perks have value, and the IRS considers them income.
Examples:
- Free clothing or gear
- Travel packages
- Meals or hotel stays provided as part of a deal
- Gift cards
If it has value, it’s taxable.
Social Media Monetization
Platforms like YouTube, TikTok, and Instagram may pay athletes directly based on ad revenue or affiliate marketing. These payments must be reported as income.
Camps and Clinics
Hosting training sessions or personal coaching counts as business income, even if it’s just a one-time gig.
3. Understanding Your Tax Responsibilities
Self-Employment Tax
As a self-employed athlete, you owe both:
- Federal income tax (based on how much you make)
- Self-employment tax (currently 15.3% for Social Security and Medicare)
This adds up fast—many athletes are shocked by how much they owe at year-end.
Quarterly Estimated Taxes
The IRS expects self-employed individuals to pay taxes throughout the year, not just in April. If you make over $1,000 in a year, you’ll likely need to file quarterly payments in:
- April
- June
- September
- January (of the following year)
Missing these deadlines can lead to penalties and interest.
4. Most Common Tax Mistakes NIL Athletes Make
Failing to Track Income
Athletes often don’t realize they need to keep records of every dollar earned, especially when receiving Venmo,PayPal, ApplePay or products in exchange for services.
Not Setting Aside Money for Taxes
It’s tempting to spend all of your earnings, but if you don’t save for taxes, you could owe thousands you don’t have.
Ignoring Non-Cash Compensation
Free gear, flights, or event tickets still have taxable value. Ignoring these can lead to underreporting income.
Thinking You Don’t Earn "Enough" to File
Even smaller NIL earners must file a return if they make more than the minimum income threshold ($400 for self-employment income).
5. How to Stay Tax-Compliant (and Stress-Free)
1. Set Up a Separate Business Bank Account
Keep your personal and NIL income separate. This helps with tracking income, claiming deductions, and staying organized.
2. Save 30–40% of All NIL Income
As a general rule, set aside at least 30% of each payment for taxes. In some cases, you may owe even more depending on your income and state.
3. Work With a Tax Professional
Hire a CPA or tax advisor who understands athlete and small business taxation. They’ll help you:
- File properly
- Take all eligible deductions
- Avoid costly penalties
4. Keep Detailed Records
Track everything:
- Contracts and invoices
- Bank deposits and Venmo transfers
- Product values
- Business-related expenses (see next section)
Use tools like QuickBooks, Excel, or even a notes app, but be consistent.
6. What Deductions Can NIL Athletes Claim?
One of the benefits of being self-employed is that you can deduct certain business expenses to reduce your taxable income.
Eligible deductions may include:
- Phone and internet (if used for business or content creation)
- Laptop, camera, or editing software
- Training gear used for your brand
- Travel for business appearances
- Clothing or styling for promotional shoots (must meet specific guidelines)
- Legal or advisory fees
- Marketing and website costs
Pro Tip: Keep receipts and document the business purpose of each expense.
7. State-Specific Considerations
Some states have no income tax (like Florida and Texas), while others have high tax rates (like California and New York).
If you do NIL work across multiple states or travel for deals:
- You may owe taxes in more than one state
- A tax advisor can help navigate multi-state filings
8. What About Scholarships and Financial Aid?
Earning NIL money can impact need-based financial aid and other university benefits. It's important to:
- Report all outside earnings honestly on financial aid forms
- Work with your school’s compliance office or financial aid advisor to understand implications.
9. What Happens If You Don’t File?
Ignoring taxes can lead to:
- Penalties and interest
- IRS audits
- Potential loss of eligibility
- Damaged credit or financial reputation
If you’ve already made NIL income and haven’t filed, it’s not too late. Meet with a tax professional and get current.
10. NIL and Long-Term Financial Planning
NIL isn’t just about surviving tax season, it’s about using your earnings to build a financial foundation. Smart athletes are:
- Setting aside money for investments and savings
- Launching LLCs or S-corporations to streamline finances
- Working with financial advisors to turn short-term income into long-term wealth
Treat your NIL like a business, and you’ll be ahead of 90% of your peers.
Conclusion: Don’t Let Taxes Derail Your NIL Journey
NIL opportunities are exciting, but they come with real-world responsibilities. Failing to plan for taxes can turn a major win into a financial headache.
The good news? With the right education, team, and systems in place, taxes don’t have to be scary, they can be a stepping stone to financial independence.
Need help setting up a plan to manage your NIL income responsibly?
Let’s talk. We help athletes like you create financial strategies that protect what you earn and build a foundation for the future.