Any income from NIL activities, including non-cash, is considered taxable income.

Student-athletes are making money through NIL activities in a number of different ways, including guest appearances at clubs and schools, autograph signings, exhibitions, sponsorships, endorsements, content creation/influencer, non-fungible tokens, gifts, and giveaways (gift cards).

Student-athletes can profit off endorsements, apparel sales, corporate partnerships, charitable appearances, teaching camps, and starting their own businesses. They can also be paid for developing their own merchandise, promoting products or services, and appearing at events due to their personal celebrity. “NIL rights” allow college athletes to control use of their own identity for commercial purposes through profits from sponsorship deals, autograph fees, social media, promotional appearances, and marketing their own brands. Social media and brand endorsement deals are the most popular revenue source for college athletes.

Income/benefits received by a student-athlete must be included in taxable income reported on the FAFSA (Federal Student Aid) application and potentially could impact the amount of financial aid granted. Pell Grants are based on a few other factors but can also be impacted by NIL income.

The U.S. Department of Education has released general guidance regarding the treatment of NIL compensation in awarding Title IV, HEA assistance.

Although top-tier athletes may negotiate NIL contracts using a professional services provider, most students will likely engage with groups associated with their colleges. Groups of college boosters – third-party entities that promote an athletic program’s interests – have formed what are known as NIL collectives. NIL collectives can be described as entities affiliated with, yet independent from, a college or university that generates funding to support NIL opportunities for student-athletes. These NIL agreements with these collectives vary in structure and can include up front amounts, monthly payments, and other incentives.

NIL collectives are structurally independent of a school yet fund NIL opportunities for the school’s student-athletes. Learn more about the NIL Collectives  

Before you start receiving income from an NIL deal, you should be aware of steps to take prior to receiving income. In most instances, you will be required to complete Form W-9, Request for Taxpayer Identification Number and Certification, so that the entity paying you can report the income that you received to the IRS. The IRS uses this information to match your reported income when you file your tax return.

In situations where you are deemed to be an employee, you will be required to complete Form W-4, Employee’s Withholding Certificate, so your employer can determine how much federal income tax to withhold from your wages.

Student-athletes may need to file a tax return depending on their gross income and whether their parents can claim them as a dependent. Find out if the student-athlete needs to file a tax return and if they can be claimed as a dependent.

Student-athletes are considered independent contractors for tax purposes. They will be regarded as self-employed and receive a Form 1099 if their income is more than $600. Being self-employed requires the following actions, among others:

• File a Schedule C, Profit or Loss from Business, with Form 1040 to determine taxable income.
• File a Schedule E, Supplemental Income and Loss, (from rental real estate, royalties, partnerships, S corporations) with Form 1040 to determine taxable income.
• Document and track all expenses incurred in generating NIL income.
• Remit both the employee and employer portions of the Social Security and Medicare taxes.
• Calculate and remit estimated quarterly payments for all tax liabilities.

A student-athlete who files his or her own tax return will have to pay federal income tax if his or her income is more than $12,950 for single filers (or $25,900 if married and filing taxes jointly) since that is the standard deduction for 2022. All athletes have to fill out a tax return to report and pay their self-employment taxes if they make at least $400 in NIL activities.

Student-athletes and/or parents of student-athletes may be eligible for certain credits, depending on income, filing status, and other life situations. These include the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit, which can be claimed for qualified education expenses for up to four years and $2,500, with as much as 40 percent potentially refundable.

Estimated tax is the method used to pay Social Security and Medicare taxes and income tax because student-athletes do not have an employer withholding these taxes for them. Form 1040-ES, Estimated Tax for Individuals, is used to figure these taxes. Form 1040-ES contains a worksheet similar to Form 1040. Individuals will need their prior year’s annual tax return to fill out Form 1040-ES. If it is the first year being self-employed, individuals will need to estimate the amount of income they expect to earn for the year.

Individuals generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.

If student-athletes didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, they may have to pay a penalty for underpayment of estimated tax.

See the Estimated Taxes page for more information. The Self-Employment Tax page has more information on Social Security and Medicare taxes.

As of March 2024 most states have laws that govern NIL rules. Many states modeled their laws on California’s “Fair Pay to Play Act,” which was the first state NIL law enacted.

Under the NCAA’s interim NIL policy, student-athletes who attend school in a state with an active NIL law must comply with that law, in addition to any institution and conference policies. Students who attend school in a state without active NIL legislation must only comply with any institution and conference policies. Student-athletes could also owe income taxes on NIL earnings in their state of residency unless that state does not have an individual income tax. Income tax rates and deductions vary substantially from state to state.

Complex issues could arise with respect to the student-athlete’s residency status. A student-athlete’s “home state” normally will remain his or her state of residence even if the athlete leaves that state to play for a university in another state. For example, an athlete who is a resident of California but attends the University of Texas will generally remain a California resident for state income tax purposes. In addition, those college athletes who go to more than one state to earn NIL will also have to contend with multiple state income tax laws and tax filings. Student-athletes will need to understand the domicile and statutory residency rules and the factors for establishing residency for the state in which they attend school and their “home state” if they intend to change their residency to the state where the university is located.

Not all states impose income taxes, but other states can impose tax at rates up to 13.3 percent, and the rules on tax deductions can vary. If a state imposes a personal income tax, the student-athlete’s residence state will tax the athlete’s income from all sources while nonresident states (including the state where the athlete’s university is located and states where the athlete plays games or makes appearances) could tax a portion of the athlete’s NIL earnings.

Do not ignore notices or letters from the IRS. The IRS has the authority to file liens against your property, garnish wages, take money in your bank or other financial account, and seize and sell your vehicle(s), real estate, and other personal property.

If you fail to file required tax returns timely or fail to pay the tax due, you could be subject to penalties and interest.

If you do owe tax or penalty, you should pay the balance as soon as possible to avoid additional penalty and interest. The IRS has various options for making payments.

If you cannot pay your balance in full you may be eligible for one of the options below:

• A payment plan to pay off your balance over time
• Requesting penalty relief
• Settling your tax debt for less than the full amount you owe
• A temporary delay of the collection process if your balance is currently not collectible

You may appeal many IRS collection actions to the IRS Independent Office of Appeals.

The Taxpayer Advocate Service is an independent organization within the IRS. TAS helps taxpayers resolve problems with the IRS, makes administrative and legislative recommendations to prevent or correct the problems, and protects taxpayer rights. TAS helps all taxpayers (and their representatives), including individuals, businesses, and exempt organizations. You may be eligible for free TAS help if your IRS problem is causing financial difficulty, if you’ve tried and been unable to resolve your issue with the IRS, or if you believe an IRS system, process, or procedure just isn’t working as it should.  

 TAS has offices in every state, the District of Columbia, and Puerto Rico. To find your local advocate’s number: 

• Visit www.TaxpayerAdvocate.irs.gov/contact-us; 
• Check your local directory; or 
• Call TAS toll-free at 877-777-4778. 

Low Income Taxpayer Clinics (LITCs) assist individuals whose income is below a certain level who need to resolve tax problems with the IRS. They also provide education, outreach, and information on taxpayer rights to individuals who speak English as a second language. LITCs represent taxpayers in disputes before the IRS and courts and help taxpayers respond to IRS notices and correct account problems. Services are offered for free or a small fee. LITCs are independent from the IRS and TAS. For more information or to find an LITC near you, see the LITC Page or Publication 4134, Low Income Taxpayer Clinic List. You can also request Pub. 4134 by calling 800-TAX-FORM (800-829-3676).