Key insights
- The recent NCAA House Settlement paves the way for schools to pay student athletes directly for use of their name, image, and likeness (NIL). NCAA schools were prohibited from paying athletes prior to the passing of the settlement.
- NIL deals may be uncharted territory for many NCAA athletes, and schools can only help so much.
- Work with a CLA tax professional who can help you navigate the complexities of federal, state, and local tax issues that come along with NIL income.
Don’t get surprised by your NIL’s income tax requirements.
Since 2021, NCAA student athletes have been allowed under NCAA rules to receive money in exchange for use of their name, image, and likeness (NIL) from third parties — including donor-backed NIL collectives — but they could not receive NIL payments directly from their school.
Recently, a federal judge approved a $2.8 billion antitrust settlement (the “House Settlement”) for three lawsuits against the NCAA and paved the way for colleges and universities to make payments directly to NCAA athletes through licensing deals.
Is NIL money taxable?
Payments for use of a student athlete’s NIL, whether made directly by schools or by third-party payors, come with tax reporting considerations. Federal and state tax rules apply to college athletes the same way they apply to professional athletes (or anyone, for that matter).
NCAA athletes receiving payments for use of their NIL may have federal, state, or local tax filing requirements to consider — depending on the amount of income and where the athlete lives or goes to school.
For some student athletes, NIL income may be the first income they have ever received, so they may not be aware of their obligations to file a tax return and pay taxes on NIL earnings. NIL creates an opportunity for athletes to learn about personal finance, budgeting, and taxation at a young age.
How is NIL money taxed?
Student athletes may have federal, state, and sometimes local taxes to consider regarding their NIL income.
Typically, the payor does not withhold taxes, making the athlete responsible for paying taxes on their NIL income. If athletes expect to owe $1,000 or more in federal taxes on their NIL income, they may need to consider making quarterly estimated tax payments throughout the year to avoid interest and penalties.
Deductions and other tax planning opportunities may be available to help reduce a student athlete's income tax liabilities.
Understanding federal self-employment tax
NIL payments are payments in a licensing arrangement, not a ‘pay for play’ like professional athletes who are paid by their employer to play a professional sport.
Even after the House Settlement, NCAA athletes are not considered employees of their school (the subject of student athletes as employees of the school is being litigated in separate ongoing litigation).
Student athletes are also generally not employees of the third-party companies that are paying athletes for NIL deals (whether collectives or private businesses). Generally, athletes will be considered independent contractors by the companies who sign them to NIL deals.
Athletes must file a tax return and pay self-employment taxes if they earn $400 or more from NIL activities subject to self-employment taxes.
The role of NIL collectives
An NIL collective is an organization that pools funds from boosters, businesses, and other donors to create opportunities for college athletes to monetize their names, images, and likenesses. These collectives are independent of universities but often work closely with them to provide financial compensation to student athletes through various activities and endorsements.
The role of NIL collectives may evolve in the post-House Settlement world. One provision in the settlement requires third-party NIL deals over $600 to be approved by an independent clearinghouse. In most cases, athletes receiving NIL income from NIL collectives would report and pay taxes on income paid by the collective in the same manner as payments directly from the school.
Tax forms and types of NIL income
Royalty payments vs. independent contractor payments
NIL income may take the form of royalty payments (Form 1099-MISC box 2) or independent contractor payments (Form 1099-NEC box 1). Both categories of income are taxed as ordinary income.
However, distinguishing between passive royalty payments and compensation for services is important, as passive royalty payments are not subject to self-employment tax.
Example of passive royalty payments
Aaliyah is a star volleyball player at a Division I university. Her school partnered with a national sportswear brand to create a line of merchandise featuring her name and jersey number. These items—ranging from hoodies and t-shirts to water bottles and posters—are sold online, in the campus bookstore, and at home games.
Aaliyah didn’t have to actively promote the merchandise herself. Instead, she signed a licensing agreement that allowed the university and the brand to use her NIL for these products. In return, she receives passive royalty payments—a percentage of the revenue from every item sold.
In addition to merchandise, the university also used Aaliyah’s image in promotional videos and highlight reels broadcast during televised games and on social media. For each use of her NIL in these materials, she earns additional royalties, all without needing to take any extra action beyond the initial agreement.
Example of active royalty (service) / independent contractor payments
- Post promotional content on his personal Instagram and TikTok accounts
- Attend a launch event at a local gym
- Participate in a meet-and-greet and autograph signing session
- Record a short video ad for the company’s website
Taxable NIL income
Cash or non-cash payments and compensation (e.g., vehicles, NFTs, sports equipment, crypto) are considered taxable income and should be reported on Form 1099-NEC.
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 (estimated taxes may be due earlier). Non-cash income may create a cash flow issue for those who don’t plan appropriately for tax payments.
Tax planning opportunities for NCAA athletes
Mitigating tax on NIL income
- Retirement deferrals (e.g., SEP IRA plans or Roth IRA contributions) — These may provide an opportunity for college athletes to begin saving money for retirement in tax-qualified accounts at a young age.
- Entity formation (e.g., single-member LLC with an option to elect S corporation status) — Forming an entity such as a corporation or LLC may be beneficial in some cases, but not all. Consult a tax advisor to determine if an entity is appropriate.
- Contemporaneous record keeping to track expenses (e.g., mileage logs, accounting software, separate business bank account)
Tax deductions for NIL expenses
- Unreimbursed travel expenses, including business mileage and meals
- Professional fees (legal, accounting, advisory)
- Business use of cell phone, home office, internet
- Agency fees
- Advertising and marketing expenses (including editors or publicists)
- Training expenses, including private coaches, gym fees, training equipment
- Equipment and supplies related to content creation (e.g., cameras, video equipment)
Other considerations regarding NIL earnings
| Financial aid and tax credits | NIL income may impact eligibility for need-based federal financial awards and educational tax credits. |
| Dependent status | Families need to determine if the student athlete can be claimed as a dependent. Generally, a qualifying child under age 24 may be claimed if they provide less than half of their own support. |
| Pre-NIL financial aid | Some types of financial aid, such money for room and board, are considered taxable income. Income from summer or off-season employment must also be reported. |
| Home states and school locations | From a state and local tax perspective, student athletes need to consider where they are deemed a tax resident as well as where they go to school. Athletes may also need to consider nonresident states where they perform services (e.g., physically traveling to a different state to shoot a commercial or promo). |
| Immigration and visas | International student athletes may have additional considerations, as certain types of income may impact their immigration status and eligibility for student visas. |
How CLA can help with NIL tax planning
Smart tax and financial planning starts with knowing when to seek professional guidance. For college athletes, CLA can help you take advantage of tax opportunities and stay in compliance at any stage of your career.
- Our experienced tax professionals work with you to evaluate your tax situation and help you stay compliant with federal, state, and local tax regulations related to NIL earnings.
- Our financial planners provide personalized strategies to help you retain more of your income and build a foundation for long-term financial success.
- Our business management and outsourcing team offers hands-on support to help you stay organized — assisting with bill payments, accounting, financial reporting, and coordinating banking or insurance needs.