Key takeaways
- NIL income is usually taxable at both the federal and state level, depending on where you earn it.
- Non-cash compensation relating to NIL deals, like free merchandise or trips, is also considered taxable income.
- Where you live, play, and sign deals can all affect your final tax bill.
I was talking to a college athlete friend who’d just landed her first NIL deal. It was a huge win for her. Extra money, more visibility. But before she could celebrate, she’d been up Googling taxes at midnight, trying to work out how much money she’d be keeping.
It’s a lot to process, especially if you’re new to paying tax. Between different rules and different taxes, the math can get complicated fast. The good news is that understanding how it applies to you will help make it less overwhelming.
NIL income and why taxes can reduce how much you keep
NIL (name, image, and likeness) income comes from deals and opportunities student athletes get based on their personal brand. Whether it’s an actual payment in dollars or non-cash compensation in the form of merchandise or trips, the IRS treats it as taxable income.
That means NIL earnings are likely to be subject to:
- Federal income tax
- Self-employment tax
Whether they’re subject to state income tax as well depends on the circumstances. To understand how it all works, it’s worth starting with the basics.
NIL taxes FAQ
Do I have to pay state taxes on NIL income?
In most cases, yes. Though there are some places that don’t have state income tax, in most states NIL income is taxed in the same way as wages and freelance income.
Do NIL deals count as self-employed income?
Yes. The IRS generally considers NIL income as self-employed income, so earnings of at least $400 for the year (after deductions) are subject to federal self-employment tax of 15.3%. States assess income tax on these earnings.
If you expect to owe $1,000 or more, the IRS recommends making quarterly estimated payments using Form 1040-ES.
Does it depend on where I live and play?
Yes. And this is where it can get complicated. Unless you live in a state that doesn’t tax income, you’ll likely be taxed by your home state. If you earn money tied to another state, you may need to file in more than one state and claim credits (or allocate taxes) to avoid being taxed twice.
Should I report NIL earnings when I file?
Yes. Your NIL income should be reported on Schedule C when you file a Form 1040. You may receive a 1099 form to report the income, but it’s important to report all earnings even if you don’t receive a 1099.
What if I’m an international student earning NIL income?
If you’re an international student, you may be eligible to receive NIL income, and you’ll have to pay U.S. taxes on that income.Your filing requirements will probably vary, depending on your status. It’s worth checking your specific situation and what it might mean before you start earning to avoid falling foul of the rules.
Understanding taxes on NIL income
NIL deals can be a big financial step, especially if you’re able to keep more of what you earn. Planning ahead can help you avoid giving more away than necessary, and that money can stay in your pocket as a head start for your future.
See what you may be able to claim with the Self-Employment Calculator and get a clearer picture of your NIL taxes before filing your tax return.
