For student athletes, NIL means visibility, income – and taxes

Student athletes across the country have new opportunities to generate income and awareness thanks to name, image, likeness (NIL) guidelines adopted in 2021 by the NCAA.

The new NIL policies allow collegiate student-athletes to receive compensation for a range of activities, capitalizing on their name, image or likeness. These activities can include endorsements, social media activities, personal appearances and signing autographs. Here are some key points to understand before you dive into making NIL income.

The earnings window is open

NIL offers many ways to generate income. From Olivia Dunne to Arch Manning, top college athletes have found a variety of ways to pursue NIL dollars. Some activities you can build on your own; some may require partnerships with companies or local businesses. Popular methods to capture NIL income include:

1. Endorsement deals: Sign endorsement deals with a company or brand and be compensated to promote products, appear in advertisements or use merchandise.
2. Personal branding: Capitalize on your personal brand and build audience awareness through advertising, merchandise sales, event participation and other commercial avenues.
3. Social media activity: Many college athletes have significant followings on social media platforms. As you build followers, you can leverage your influence to partner with brands for sponsored posts, brand collaborations and affiliate marketing.
4. Online content creation: Create content on platforms like YouTube, TikTok, podcasts, or other outlets, getting paid by advertisers, through subscriptions or other means.
5. Autograph signings and appearances: Athletes can charge for autograph signings, public appearances and speaking engagements.
6. Licensing deals: License your name or image to be used in advertisements, video games, apparel or other media.
7. Camps and clinics: Host sports camps and training clinics for aspiring athletes, charging participation fees.
8. Local business partnerships: Partner with local businesses for promotions, appearances, endorsements or joint marketing initiatives.

Whatever activities you pursue, remember the NCAA pay-for-play and impermissible inducement rules still apply. State, university and conference specific NIL rules can apply too. You’ll want to review the NIL rules in your state and check with your athletic department for school and conference-specific rules.

 Be ready for taxes

As exciting as NIL opportunities can be, remember that when you earn income, it means income taxes. Money and other compensation you earn through NIL activity is subject to federal, state and local income taxes.

You’ll need to pay particular attention to state taxes. Depending on where you live and where your NIL activities take place, you may be subject to various state tax laws. Under a tax law that has become known as “the jock tax,” non-residents of a state get taxed for income earned while visiting that state. States have various tests for what it means to be a resident, including day-count thresholds and examinations of various factors such as intent to return. It’s a good idea to keep track of what states you travel to and what income you earn in each state. At tax time, not only will you be taxed in your state of residence (if your state has an income tax), you likely will need to complete multiple state tax filings. 

Here are some other key things to keep in mind from a tax perspective:

• Self-employment taxes: Most NIL opportunities are classified as self-employment income. If your NIL income is greater than $600 for any source, you should receive a form 1099-NEC from that source showing the amount of income to report on Schedule C on your tax return. If the payments are less than $600, you will need to keep track of them yourself or you may receive a 1099-K showing the payments if they are made through payment apps like Venmo or Zelle. Self-employment income tax is 15.3% of net self-employment income, which is comprised of both the employee and employer portions of the Social Security and Medicare taxes. Self-employment tax is in addition to your federal income tax on all income. You get to deduct half of your self-employment tax in figuring your adjusted gross income.
• In-kind compensation: Compensation isn’t limited to money. It can take other forms like equipment, clothing, merchandise, food or discounts on products. If these items are tied to your NIL activities, you need to keep track of them as they add to your taxable income.
• Deductions and expenses: You may be able to deduct certain expenses related to NIL activities, such as equipment, travel, production or marketing costs to name a few. When it comes to filing a Schedule C for self-employment income, there are many different deductions that are allowed to reduce this type of income. You should be keeping records and receipts for any expenses that you plan to deduct.
• Estimated tax payments:  Since taxes are generally not withheld from NIL income, you need to plan to be able to pay the taxes on your income when it comes due. Paying estimated taxes is the method used to pay taxes quarterly for individuals that do not have an employer withholding taxes on their income. Since student-athletes are considered self-employed, you should consider paying quarterly federal and state estimated payments to avoid potential penalties. Even if you are not required to make estimated payments, making the payments is a way to ensure you don’t spend money that you will need to pay your taxes.
• Impact on financial aid: NIL income must be included in taxable income and reported on a FAFSA application. If your NIL income is high enough, it could impact the amount of financial aid you are granted.
• Working with NIL collectives: Boosters and fans of universities have established what are called NIL collectives to develop, facilitate and fund NIL deals for student-athletes. NIL collectives are independent of a school and are typically founded by alumni and supporters of the school. They generate and pool revenue raised through contributions from a range of sources, including boosters, businesses, fans and others. Most of the larger NCAA schools have at least one, with the largest having multiple collectives. Some collectives have been granted tax-exempt status as nonprofit 501(c)(3) entities, but the IRS has recently knocked down that status for some collectives and indicated it is reviewing the status of others. For those funding and operating NIL collectives, this is a significant issue in terms of the deductibility of contributions to a collective and the costs to run the collective. For athletes working with collectives, the important thing to remember is, whether a collective is tax-exempt or not, any income you earn through a NIL collective remains taxable.

Tax laws and regulations can be complicated, and they vary from state to state. It’s a good idea to consult with tax professionals or financial advisors to understand your specific tax obligations.

Playing to win: Managing your money

As you begin to bring in income from your NIL activity, the next question is “how can you best track and manage your money?”

Think about the basic formula athletes use to achieve success over time: set goals, build a game plan, execute and adapt to changes or challenges. The same formula should apply to your finances.

With NIL money coming in, it’s easy to get caught up in the moment. But this moment won’t last forever, so planning for your future starts now. A smart step is to set a simple game plan for yourself. Think in terms of these three categories:

• What are your lifestyle needs right now? (Think about daily expenses, entertainment, travel).
• What are your long-term goals? (Think about further education, buying a house, retirement).
• What are your dreams for the future? (After your college career, what kind of business will you go into, how will you earn regular income, can you tie it to your interests and passions?)

When you think about your money in terms of short-term, long-term, future business and work goals, it can make it easier to set aside a percentage of every paycheck for current needs, long-term goals and taxes.

For the short-term: Remember that it’s not just what you make. It’s what you spend. Create a monthly budget so it’s easy to track what’s coming in and what’s going out. This gives you an exact picture of your income and spending, so you know where your cash is going each month, and whether you need to cut back spending in certain areas.

For long-term goals: By setting aside part of each paycheck for longer-term goals, you’ll be saving consistently. Think about it like “paying yourself” and investing in your future. While investing carries risk, putting money in stocks, bonds or mutual funds is a method to help your money grow in value over time.

Pursue your dreams: Doing the first two steps above sets you up for this third step. Budgeting and investing can help you control your money and bring you longer-term financial freedom. Your money can become a resource to help you do the things you’ve always dreamed about: continuing education, starting a business, charitable work or whatever goals you set for yourself.

None of these things are easy or automatic. It takes thought, effort and working with experienced advisors who can give you guidance along the way. Getting your game plan in place is the first step. Then execute your plan. Remember, the traits that make a successful athlete can help you throughout your life: setting goals, perseverance, a strong work ethic, good instincts, coachability and being a team player.

If you have questions about NIL income or how to take advantage of your opportunities, our advisors can help you create a plan that works for your situation.