The National Taxpayers Union Foundation (NTUF) recently pointed out how tough tax compliance has become for college athletes making money from Name, Image, and Likeness (NIL) deals.
With NIL on the rise, tax guidance at both state and federal levels is still pretty unclear. Young athletes are left trying to figure out a mess of tax rules on their own.
NTUF has a few ideas for federal action that could make these tax obligations less of a headache. The hope is that athletes can spend more time on school and sports, and less time stressing over tax forms.
Understanding NIL Income and Its Tax Implications
NIL income is basically money made by using someone’s public image. That can mean athletes, influencers, or really anyone with a public following.
For college athletes, NIL income usually falls into three buckets:
- Traditional NIL: Getting paid by brands for things like commercials, product endorsements, event appearances, or showing up in video games.
- NIL Collectives: Groups of boosters pooling cash to pay athletes at their favorite school, while (at least officially) following NCAA rules against pay-to-play.
- Direct Pay/Revenue Sharing: Colleges paying athletes up to a certain cap, but doing it as licensing deals instead of wages.
Even with these categories, figuring out how to classify and source NIL money isn’t straightforward. States vary, and the rules can get messy fast.
Uncertainty Around Income Classification
Athletes are often unsure how to report their NIL earnings. The IRS generally breaks NIL income into a few types:
- Self-employment income: Money from things like sponsorships, ads, or social media.
- Royalties: Passive income from letting someone use their NIL, like in a video game.
- Pass-through income: Money earned through an LLC or similar business setup.
- Wages: Payment as an employee, though this is rare for college athletes right now.
Most states use federal income definitions, but some don’t, and that can cause confusion. NTUF argues NIL income shouldn’t be treated as wages, since it’s usually structured as licensing to fit NCAA rules.
Uncertainty Around Income Sourcing
Even if states agree on how to classify NIL money, figuring out which state gets to tax it is another story.
If an athlete does events in multiple states, they might owe taxes in each one. That’s a headache—especially for those who keep residency in their home state and risk getting taxed in more than one place.
For athletes using LLCs, things get even trickier. Some states tax the LLC itself, while others treat it as pass-through income. Mixed contracts, where some work is active and some is passive, only add to the confusion.
Proposed Federal Actions to Simplify NIL Tax Compliance
Clearly Define NIL Compensation
Congress could step in and spell out exactly what counts as NIL compensation for athletes and public figures. That would stop states from forcing NIL money into the wrong tax categories just for political reasons.
It’s especially important for Congress to make it clear that licensing-based NIL income isn’t the same as wages.
Clearly Define NIL Sourcing
Congress could also set straightforward rules on when and how states can tax NIL money. Standardizing this would help with mixed contracts and cut down on double taxation.
With a national framework, the whole process would be less confusing for athletes.
Consider Mandatory Withholding for Certain Types of Self-Employment Income
One major problem is that companies paying athletes for NIL deals usually don’t withhold taxes. Congress could require some withholding for college athletes, but without making them employees.
This could be limited to big businesses, NIL collectives, or schools—entities that can handle complicated, multistate tax rules way better than individual athletes can.
Pass a Modified Version of Nationwide Mobile Workforce Protections
Congress has looked at laws that would let nonresident employees skip tax filings until they’ve worked in a state for 30 days. Extending that idea to self-employed folks, like college athletes, could save them from dealing with piles of paperwork just for a weekend tournament in another state.
Prohibit State Imposition of Jock Taxes on College Athletes
Some states might try to tax college athletes when they play away games, which would mean more tax filings in more places. Congress could put a stop to this by saying states can’t tax college athletes simply for playing games in their state.
That would help prevent a new wave of “jock tax” policies aimed at college players.
Conclusion
College athletes can finally earn money for their NIL, but wow, the tax situation is just… a headache. The current rules make life harder than it needs to be for these students.
I mean, shouldn’t they be able to focus on their classes and the game, instead of worrying about tax paperwork?
The NTUF has some proposals that could help Congress make things less complicated for NIL earners. If you want to dig into the details, check out the full NTUF article here.
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