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Student Athlete NIL Deal Tax Guide

If you’re a college athlete with a Name, Image, and Likeness deal (or are a business thinking about offering one), here’s what you need to know about taxes and managing your money.

You have to pay taxes on NIL deals.

Unlike athletic scholarships, academic scholarships, or other financial aid, NIL deals are taxable income. That’s because you’re performing a service for a business.

Whether you make endorsements, attend photo shoots, sign autographs, attend camps, or act as an influencer, that’s paid work just like any other job.

Your taxable income includes more than just cash.

Taxable income isn’t just cash, checks, and direct deposits. It includes any type of compensation you receive such as

  • Cryptocurrency (Bitcoin, Ehtereum, etc.)
  • Non-Fungible Tokens (NFTs)
  • Gift cards
  • Free merchandise
  • Loaner items

If you receive merchandise, you’ll need to report it at the cash value. If you get the use of a car or some other item for a fixed period of time, you’ll need to report it at the lease or rental value. For example, if a car dealership gives you a car for a year, your taxable income is how much it costs to lease that car for a year.

College athletes with NIL deals are independent contractors.

Because your NIL deal usually involves negotiating specific activities on a schedule you determine, you’re usually an independent contractor. That’s a different tax status than an employee who clocks in and out of their shifts at a store or some other job.

You’ll get a 1099.

If you receive $600 or more from an NIL deal, you’ll get a 1099 at the end of the year. The 1099 reports your income to the IRS.

If the business paid you directly, you’ll usually get a 1099-NEC. If they paid you through a payment service, you might get a 1099-K instead. There are no differences in your taxes depending on which form you get — the letters just depend on who gave it to you.

You have to set aside money for taxes.

When you’re paid as an independent contractor, you usually don’t have taxes taken out when you’re paid. You have to pay the IRS from the money you receive.

You’ll usually need to set aside at least 25% for taxes and possibly more if you sign a large deal. To avoid owing interest at tax time (or not having enough money saved), you need to make four estimated tax payments per year.

You have to file a Schedule C with your tax return.

Income from NIL deals goes on Schedule C of your Form 1040 individual tax return. If you had at least $400 in income, you have to report all of your income even if you didn’t get a 1099.

Filling out your tax forms isn’t hard. There’s free tax software you can use. You just tell it how much you made and it does all of the math.

ps. Taxes are due on April 15th for the money you made between January 1st and December 31st of the year before. So if you make money during 2022, you file your taxes by April 15, 2023.

You may have expenses you can deduct.

If you have expenses to complete your NIL deal, you can deduct those expenses. They go on Schedule C and will reduce your taxable income. You don’t have to itemize your deductions to claim expenses because business expenses aren’t itemized deductions. They’re business deductions.

Examples of expenses you might be able to deduct include:

  • Travel costs such as flights, hotels, or car mileage you had to pay to attend an event
  • Special software or equipment you use like cameras or editing software for photos and videos
  • Accounting, legal, or other fees if you hired someone to help you manage your deals

All expenses need to be directly related to your NIL deals. Costs of participating in your sport or preparing for your sport are separate from your NIL deal and generally aren’t deductible.

You should create an accounting system or use accounting software to make sure you don’t miss any deductions.

You may have to pay state and federal taxes.

Income from NIL deals is subject to federal income taxes and self-employment taxes. Self-employment taxes go towards your Social Security and Medicare.

You may also have to pay state, city, or other local income taxes. The rules vary based on where you are. It depends on 1) where you do the work and 2) where you live. As a college student, where you live can either be your college or your family’s house back home.

To reduce your taxes, you can

  • Make sure your legal permanent residence (either your college apartment or house your family lives in) is the place with lower taxes
  • Try to do the work for your deal in the place with lower taxes

Depending on the size of your potential deals, it can make sense to hire an accountant before you sign. For example, if one place has no income taxes and the other has a 5% tax rate, that’s $500 on a $10,000 deal. Your accountant can help you set things up so you’re taxed at the lower rate.

Your parents may not be able to claim you as a dependent.

Your parents can only claim you as a dependent on their tax return if you’re under age 24 and they provide more than half of your support. Support is who pays for your expenses like food, housing, clothes, and other necessities.

If your NIL deal, scholarships, financial aid, and other sources of income cover more than half of your support, your parents can’t claim you as a dependent. Usually, this means they lose the $500 Family Tax Credit.

If they’ve taken out parent student loans for your education or pay for your books, tuition, or other education expenses, they may lose other tax benefits. You’ll want to sit down with them and a tax accountant to figure out how to file your taxes.

You may lose needs-based financial aid.

If you have financial aid based on your income or your family’s income, you may lose it when your income increases. You’re expected to use some of the money from your NIL deal to pay for your education.

Needs-based aid includes things like Pell Grants and other awards that depend on the income on your FAFSA. Academic and athletic scholarships generally aren’t impacted since they’re not usually based on your financial situation.

You may lose education tax credits.

If you make more than $59,000 per year, you may start to lose eligibility for tax credits for educational expenses. If you’re able to get an NIL deal or find other work that makes you that much money, it’s worth a lot more than the tax credits.

You can put money in an IRA.

Money from an NIL deal is earned income, so you can use it to put money into a Roth, Traditional, or SEP IRA. This helps you to get an early start on your retirement savings. If you decide to buy a house later on, there are ways you can use the money from your IRA for a down payment.