As a student-athlete earning money through Name, Image, and Likeness (NIL) deals, you’re probably excited about the financial opportunities that have come your way. However, with these new earnings comes an important responsibility that many student-athletes aren’t prepared for: paying taxes.
Unlike the money you might earn from a part-time job or summer gig, NIL income can create a unique tax situation that you need to navigate carefully. Not understanding your tax obligations can lead to unexpected penalties, fees, and headaches down the road. Here’s a guide to help you understand how to pay taxes on your NIL income and avoid any surprises come tax season.
1. Understand That NIL Income Is Taxable
First and foremost, any money you earn from NIL deals is taxable income. Whether you’re getting paid in cash, receiving free merchandise, or being compensated in other ways, the value of those payments must be reported to the IRS. This includes signing bonuses, endorsements, appearance fees, and any other NIL-related income.
It’s important to recognize that even if you’re paid through different methods (e.g., checks, direct deposits, or gifts), the IRS considers all of it taxable. If you fail to report these earnings, you could face penalties or even an audit.
2. Know the Types of Taxes You Might Owe
There are a few types of taxes you may be required to pay on NIL income:
- Federal Income Tax: This is the tax you owe to the federal government. Your tax rate depends on how much money you earn in total throughout the year.
- State Income Tax: Depending on the state where you live (or where you earned the income), you might owe state income taxes as well. Each state has its own tax rules, so you’ll need to check the specific rates and requirements.
- Self-Employment Tax: Since NIL income is often considered self-employment income, you may be required to pay self-employment taxes, which include Social Security and Medicare taxes. As a self-employed individual, you’re responsible for the full 15.3% tax rate (instead of splitting it with an employer).
3. Track Your Income and Expenses
One of the most important things you can do to make tax season easier is to keep detailed records of all your NIL-related income and expenses. Every time you receive payment for an appearance, endorsement, or social media post, write it down. Also, keep records of any expenses you incur related to your NIL activities, as you may be able to deduct them.
Common deductible expenses include:
- Travel costs for appearances or events
- Marketing or branding expenses
- Legal or accounting fees related to NIL contracts
- Equipment or supplies used in your NIL efforts (like cameras or software for content creation)
By tracking these expenses, you’ll be able to lower your taxable income by claiming deductions, which can reduce the amount of taxes you owe.
4. Set Aside Money for Taxes
It’s easy to get excited when you receive NIL payments, but it’s critical to remember that not all of that money is yours to spend. You should plan to set aside a portion of your earnings specifically for taxes.
A good rule of thumb is to set aside at least 25-30% of your income for taxes. This may seem like a large chunk, but it ensures you’re covered when tax season comes. If you don’t set aside enough money, you could be hit with a large tax bill that you’re unprepared for.
5. Consider Making Estimated Tax Payments
If you’re earning significant NIL income, you may need to make estimated tax payments throughout the year. This is especially important if you’re earning a substantial amount of self-employment income and don’t want to face a large tax bill come April.
Estimated taxes are payments you make to the IRS on a quarterly basis. By paying a portion of your taxes every few months, you can avoid penalties for underpayment and make your overall tax situation more manageable.
To make estimated tax payments, you’ll need to calculate how much you owe for each quarter and send those payments to the IRS using Form 1040-ES.
6. Understand Tax Forms You’ll Receive
When tax season arrives, you’ll likely receive a few different tax forms related to your NIL income. The most common forms include:
- 1099-NEC: If you earned more than $600 from any NIL deal, the company that paid you will likely send you a 1099-NEC form. This form reports the amount of income you received as a non-employee (i.e., a self-employed individual).
- W-9 Form: When you enter an NIL deal, you may be asked to fill out a W-9 form, which provides your tax identification number (usually your Social Security Number) to the company paying you. This allows them to report your earnings to the IRS.
It’s important to file these forms correctly and report all of your income to avoid any issues with the IRS.
7. Get Professional Help If Needed
Navigating taxes as a student-athlete earning NIL income can be overwhelming, especially if you’re new to self-employment and tax reporting. If you’re unsure about your obligations, it’s a good idea to consult with a tax professional or accountant who can guide you through the process.
A tax professional can help you:
- Understand what taxes you owe
- Claim all eligible deductions
- Avoid penalties for underpayment or misreporting
- Ensure you’re following both federal and state tax laws
By working with a professional, you can reduce your stress and ensure you’re handling your NIL taxes correctly.
Conclusion: Be Proactive About Your Taxes
While earning money through NIL deals is an exciting opportunity, it also comes with new responsibilities, including paying taxes. By staying organized, setting aside money, and understanding your tax obligations, you can avoid costly mistakes and penalties.
Take control of your finances, and make sure you’re prepared when tax season arrives. Being proactive about your taxes today will ensure that your NIL earnings continue to benefit you long into the future.
Written by Pat Brown, MBA, Former D1 Player