As part of the House v. NCAA settlement framework, schools are expected to share future revenues directly with student-athletes. Combined with existing Name, Image, and Likeness (“NIL”) opportunities, many college athletes will soon receive payments that trigger tax obligations. Below are some key considerations: All NIL and Revenue-Sharing Payments Are Taxable. The IRS confirmed that cash and non-cash compensation from NIL deals and revenue-sharing payments is taxable income. Any athlete who earns NIL compensation of $400 or more during a tax year is required to report that income on his or her federal income tax return, no matter whether the payment comes from a school or a third-party sponsor. Such compensation will generally be reported on Schedule C, Profit or Loss from Business, or Schedule E, Supplemental Income and Loss. Expect 1099s, Not W-2s. Most NIL and revenue-sharing payments will be treated as self-employment income. Unlike wages, these payments typically will not have taxes withheld at the source, making it the athlete’s responsibility to track income and set aside funds for tax liabilities. Self-Employment Taxes Apply. Because NIL income is generally considered business income, student-athletes will likely be subject to self-employment tax, in addition to federal and state income taxes. The self-employment tax rate is 15.3% (comprised of the 12.4% Social Security tax plus the 2.9% Medicare tax), although one-half of this tax might be deductible from the student-athlete’s total income. Quarterly Estimated Payments May Be Required. Because there will be no withholding on the NIL and revenue sharing payments, athletes may need to make quarterly estimated tax payments to avoid penalties and interest when they later file their income tax returns. This requires careful planning, especially for those receiving larger NIL or revenue-sharing payments. Student-athletes may choose to work with a tax accountant and/or a tax lawyer on these issues. Business Deductions Can Reduce Tax Burden. NIL-related expenses—such as marketing, legal fees, and travel—might be deductible against NIL income. Keeping detailed records of expenses is essential. State Tax Obligations Vary. Student-athletes must also consider state and local tax rules, which may apply both where they attend school and where NIL activities occur. Some states do not impose a personal income tax, while other states are introducing legislation to exclude NIL and/or revenue-sharing payments from taxable income. Student-athletes should treat NIL and revenue-sharing income as if they are running a small business—tracking payments, saving for taxes, and seeking professional guidance early to avoid unexpected liabilities. The attorneys of the Athletics Practice Group are experienced at counseling and representing student-athletes, universities, athletic associations, NIL collectives, and others on a variety of athletics matters, including those related to name, image, and likeness arrangements and student-athletes’ rights under revenue sharing arrangements. Complementing this work, our Tax Practice Group advises on an array of federal, state, and local tax matters. We will continue to monitor developments and provide additional analysis of the recent significant shift in college sports. If you have any questions about how the settlement will impact you, your institution, your collective, or your business, please contact a member of Lewis Rice’s Athletics or Tax teams.
