Key insights
- Navigating the tax requirements for name, image, and likeness (NIL) deals may be uncharted territory for many NCAA athletes, and schools can only help so much.
- Some income tax complications for student-athletes may involve residency issues, financial aid eligibility, and the need to make estimated tax payments.
- Schools are limited in the types of services that may be provided to students related to NIL opportunities; recent NCAA guidance lists permissible and impermissible activities.
- Work with a tax professional who can help you navigate the complexities of federal, state, and local tax issues that come along with NIL income.
Don’t let the income tax requirements of your NIL deal surprise you.
Since June 2021, when the Division 1 Board of Directors approved an interim name, image, and likeness (NIL) policy, college student-athletes have continued to find opportunities to profit without jeopardizing their NCAA eligibility. And though the NIL policy creates an opening for NCAA athletes to earn more income, the new opportunity also comes with specific tax considerations and reporting requirements.
Athletes new to tax filing may need extra guidance
Tax rules apply to college athletes the same way they apply to professional athletes (or anyone, for that matter). NCAA athletes receiving payments for NIL may have federal, state, and potentially local income tax filing requirements — depending on the amount of income and where the athlete lives or goes to school. As a college athlete, if you are not experienced with tax matters in general, you may not be aware of your obligations.
Most schools are beginning to put programs in place to educate their student athletes about NIL — to the extent they are allowed. In October 2022, the NCAA’s Division I board of directors issued a new set of clarifications to better distinguish NIL from pay-for-play. The NCAA limits the types of services and education schools can provide regarding legal and financial matters.
Schools are not allowed to provide services, other than education, to support NIL activities (such as tax preparation and contract review) unless the same benefit is generally available to all the institution’s students. Many schools advise student-athletes that their NIL income is taxable and urge them to contact a tax professional for guidance.
Income tax considerations for NCAA athletes
NIL creates an opportunity for athletes to learn the ropes about personal finance, budgeting, and taxation at a young age. Consider some basic ground rules and potential issues:
- NCAA athletes are not employees of the school and are generally not employees of the companies paying the athlete for NIL. Generally, athletes will be considered independent contractors by the companies who sign them to NIL deals.
- Most, if not all, payments an NCAA athlete receives will have no income taxes withheld, which means if the payment is taxable, tax will be due when the athlete’s tax return is filed. Athletes should budget accordingly for cash-flow purposes, as federal, state, and potentially local income tax may be owed before April 15.
- Compensation may be in the form of cash or noncash items such as clothing, food, sports equipment, and discounts on products. Noncash compensation is also taxable income.
- State and local tax issues may arise if an athlete resides in one state but attends school in another state — or perform services such as sponsorships, promotions, or events in other states.
- Depending on the size of payments the athlete receives, they may need to consider making quarterly estimated tax payments throughout the year to avoid interest and penalties.
- Income received for use of NIL could jeopardize an NCAA athlete’s eligibility for need-based financial aid.
- Even before the NCAA’s NIL change, NCAA athletes should have been aware that some types of financial aid — such as stipends or money for room and board — are considered taxable income. Additionally, some NCAA athletes may be required to report income from summer or offseason employment.
School and booster involvement in student NIL opportunities is limited
The NCAA Division I board of directors recently published new guidance related to institutional involvement in a student-athlete’s NIL activities. The clarification was issued to better distinguish NIL earnings from pay-for-play earnings and help schools avoid violation of NCAA rules. Schools must be aware of the rules and what institutional involvement is permissible and impermissible.
How we can help
Smart tax planning starts with knowing when to ask for guidance. CLA can help you take advantage of tax opportunities and stay in compliance, at any stage of your career. Our tax professionals work closely with you to assess your tax situation and help you navigate the complexities of federal, state, and local tax issues that come along with NIL income.