Do You Owe Taxes on NIL Income? What to Know

College athletes are earning real money from their name, image, and likeness (NIL), which is a relatively new development. Since the NCAA changed its rules in 2021, student-athletes are now permitted to sign lucrative sponsorship deals, post paid content on social media, sell merchandise, and get paid for making official appearances, all while still competing. For many of these athletes, it's the first time they've received significant income, and most don't understand the tax implications or how to manage what's coming in. So, do you owe taxes on NIL income? The short answer is yes, you do owe taxes, and the IRS rules apply whether you're earning $700 or $700,000 in self-employment income.

Use this article to gain a better understanding of what counts as NIL income, how to report it, potential deductions to lower your taxable income, and other considerations to ensure the smoothest tax experience. By the end of this piece, you'll have more confidence and a better understanding of your responsibilities. If you'd prefer to focus on sports, professional support is available to ensure your tax responsibilities are managed throughout the season.

What Counts as NIL Income?

Since July 2021, and after much debate, college athletes have been allowed to profit from their personal brand while maintaining their eligibility. That opened the door to a wide range of earning opportunities, including:

• Sponsorship and endorsement deals

• Social media partnerships and paid posts

• Autograph signings and official fan appearances

• Merchandise sales featuring your name or likeness

• Licensing agreements

• Podcast or content creation deals

One area that many college athletes and families overlook is non-cash compensation. If a brand sends you free gear, gift cards, or products in exchange for promotion, the IRS treats the fair market value of those items as taxable income. A shoe company sending you $800 worth of sneakers is, from a tax standpoint, essentially the same as paying you $800.

The IRS does not carve out any special exemption for student-athletes. According to IRS guidance on NIL income, it's treated like any other self-employment or wage income, depending on how it's paid. Being a full-time student doesn't change or exempt you from your tax obligations.

Do You Owe Taxes on NIL Income?

Yes, you will typically owe taxes on NIL income. This income is taxable at the federal level, and there are usually two separate layers of tax that apply.

• Federal income tax: Your NIL earnings get added to your total taxable income for the year and taxed at your marginal rate. If you have little or no other income, your rate will probably be low. If your NIL deals are substantial, you could quickly move into a higher bracket.

• Self-employment tax: This is where many first-time earners get caught off guard. If you receive IRS Form 1099-NEC, Nonemployee Compensation, or IRS Form 1099-MISC, Miscellaneous Information from a brand or sponsor, you're treated as self-employed. That means you owe both the employee and employer portions of Social Security and Medicare taxes, which add up to 15.3% on net earnings up to the annual threshold. Understanding your obligations related to self-employment tax for NIL deals is critical before spending any of that money. Keep in mind that you're responsible for reporting all income, regardless of the forms you receive. This makes regular bookkeeping practices essential.

There is one exception worth noting: if a school or organization pays you through its payroll system and issues a W-2, FICA taxes funding Social Security and Medicare are withheld automatically. But most NIL arrangements don't work that way. Brands and sponsors typically pay athletes directly and issue a 1099, which means the tax responsibility falls entirely on you.

How to Report NIL Income to the IRS

How NIL income taxes for college athletes are reported depends on how you were paid. Here's a simple breakdown:

That last row matters. Many athletes assume that if they didn't receive a 1099, they don't have to report the income, but that's not how it works. The IRS requires you to report all income you receive, regardless of whether a form was issued. If a local business paid you $300 in cash for an appearance, that income is still legally yours to report.

Non-cash compensation follows the same rule. You report it at fair market value on Schedule C, even if no one sent you a tax form. If this is your first time filing as a self-employed individual, Schedule C is the form where you list your income and deduct your business expenses, and it flows directly into your personal Form 1040.

Quarterly Estimated Taxes for NIL Athletes: What Earners Need to Know

When no employer is withholding taxes from your paycheck, the IRS expects you to pay as you go throughout the tax year. That means making quarterly estimated tax payments throughout the year rather than waiting until April to pay a lump sum.

If you expect to owe $1,000 or more in federal taxes for the year from all income sources, not just NIL income, you're generally required to make quarterly payments. The standard due dates fall in the middle of April, June, September, and January. Missing these deadlines can trigger underpayment penalties even if you pay everything you owe by the annual filing deadline. IRS Form 1040-ES, Estimated Tax for Individuals, will help you calculate and submit those payments.

This is another area where many first-time NIL earners run into trouble. They receive payment for a deal, spend it, and then face an unexpected tax bill months later with no cash set aside. The SBA guidance on paying taxes as a self-employed individual reinforces the importance of treating these obligations as an ongoing responsibility rather than a once-a-year event.

A practical rule of thumb: set aside 25% to 30% of every NIL payment in a separate account as soon as you receive it. That creates a dedicated tax reserve to help ensure you're never scrambling when a deadline arrives.

Can You Deduct Business Expenses Against NIL Income?

While traditional employees have few options to reduce their taxable income through deductions, self-employed student-athletes do. If you're reporting NIL income on Schedule C, you can deduct ordinary and necessary business expenses against that income. That reduces your net earnings, which lowers both your income tax and your self-employment tax.

Common deductible expenses that student-athletes should consider include:

• Agent or manager fees

• Legal fees for contract review

• Equipment used for content creation (cameras, lighting, microphones)

• A portion of phone and internet costs used for NIL business

• Travel to appearances, events, or signings

• Marketing costs, website fees, or social media tools

While it's important to include qualifying expenses, it's also important to understand what doesn't count. Personal expenses unrelated to your NIL income aren't typically eligible to be deducted, like commuting to and from campus and general education costs. The IRS requires expenses to be directly tied to your income-producing activity. If you bought a camera specifically to create sponsored content, that's a business expense. If you bought new shoes to go out with friends, that's personal.

Good recordkeeping is what makes NIL tax deductions for student-athletes defensible. Keep receipts, invoices, and contracts organized in a secure, centralized location throughout the year. 1-800Accountant's tax experts understand self-employment income and can help you identify which expenses qualify while establishing a recordkeeping system from the start, before things get too complicated.

State Taxes on NIL Income

Federal taxes are only part of the picture. Most states with an income tax will also tax your NIL earnings, and the rates and rules vary significantly.

If you attend school in one state but maintain residency in another, you may have multi-state filing obligations. That adds complexity, especially if you travel for appearances or events in other states. Some states, including Florida, Texas, and Nevada, have no state income tax, which means athletes in those states keep more of their NIL earnings. That's a real financial consideration, though it shouldn't be the only factor in choosing a school.

State tax rules for NIL income are still evolving in some jurisdictions, so consulting a tax professional for state-specific guidance is a smart move early on, not after you've already started to receive payments.

Staying Ahead of Your NIL Tax Obligations

The tax picture for NIL earners gets more complex as their income grows. Multiple deals, different payers, non-cash compensation, and potential multi-state activity all add layers that can be difficult to manage. The athletes who handle this well, like their sports career, are the ones who start organized from day one.

If you're about to sign your first NIL, use this checklist to ensure nothing falls through the cracks.

1. Track every payment received, including non-cash compensation at fair market value.

2. Determine whether each payer will issue a W-2 or a 1099.

3. Set aside 25% to 30% of each payment immediately for taxes.

4. Determine whether quarterly estimated payments are required.

5. Keep records of all business-related expenses throughout the year.

6. Check your state's tax rules for NIL income and any multi-state obligations.

Athletes managing multiple income streams often benefit from working with a dedicated accounting team year-round, not just at filing time. Having a professional review your situation can catch small problems before they become bigger issues.

What to Do Next

If you make NIL income, you owe taxes, and the rules apply regardless of your age or student status. The two core obligations are federal income tax and, in most cases, self-employment tax. Preparation throughout the year is what separates a manageable tax bill from an unpleasant surprise: track your income, set money aside, and make accurate quarterly payments on time.

1-800Accountant, America's leading virtual accounting firm, offers year-round tax guidance for athletes, parents, and advisors trying to get this right. Affordable, tax-deductible services are designed for self-employed individuals navigating student-athlete income and similar situations for the first time. This way, you don't ever have to figure it out alone.

Schedule a free 30-minute consultation with 1-800Accountant to learn more and to get started.