Three Things College Athletes Should Know About Taxes

Tax season always causes stress, even for the most seasoned professionals. Tax law is complex and sometimes overwhelming, especially when you don’t understand how to plan ahead for tax day. College athletes are quickly realizing that while NIL monetization can be life changing, it also brings increased responsibility for their finances. Here are three things college athletes should know about taxes:

1. Swag, gear, and other items are taxable.

You are subject to tax on the value of whatever swag, gear, food, or non-cash item you receive from NIL deals. For example, if you receive a car as part of an NIL deal, then you could be subject to taxes on that vehicle. Thus it is vitally important that you understand your tax obligations as it relates to those items. One way to relieve some of the tax burden is to ask for both items and cash for all your NIL deals, then placing part of that cash into a high-yield savings account that provides high interest payments to you. That way you can begin saving for that inevitable tax day. Secondly, keep track of all the items and cash you receive from every deal in a detailed spreadsheet that you regularly update along with what state or country it was earned. That way you will be able to easily provide that spreadsheet to an accountant, prepare your taxes on your own, or utilize free preparation services through programs like the IRS’s Volunteer Income Tax Assistance (VITA) program.

Additionally, earning income could mean a reduction in aid-based financial aid like Pell grants or other federal awards programs. Always talk to your financial aid point of contact at your school to discuss any implications.

2. Are you an independent contractor or employee?

It is vitally important to understand how you are categorized in each of your NIL contracts. Most often, athletes are categorized as independent contractors in their NIL deals. This means the athlete is fully responsible for paying their income taxes. A good strategy to address this need is setting aside at least 30% of all income from each deal to pay taxes at the end of the year. However, sometimes athletes are W2 employees of the companies hiring them for NIL deals. This means the employer will take out a percentage of the athletes’ paycheck each pay period to pay toward taxes, social security, and the like.

If you are categorized as an independent contractor then you should receive a 1099 form from the company. If you are an employee then you will receive a W2 form from your employer. You should look for these documents in the mail at the address you gave the company. In some instances, this could be an old apartment address or your parent’s house. Be sure to update these addresses as you move so you never miss these important tax documents. Companies are required to mail these by January 31 and taxes typically are due on April 15.

3. State income tax and federal income tax. 

You could be responsible for paying both federal and state income taxes, depending on where you live and conduct business. Some states do not have a state income tax, like Florida and Texas. However, other states, like California and New York, charge state income tax. You should also be aware of the states where you earn income and your resident state, because you could be responsible for paying tax in multiple states.

For example, if you are a resident of Texas, but shoot a commercial in California, you could be subject to California income tax. The same could be true if you have residency in one state but go to school in another–. you might be responsible for taxes in both states.

You should also be aware that your tax dependency status could be affected by earning NIL income, which could mean you will have to file independently of your parents. Parents often claim their children as dependents on their taxes. However, if college athletes are earning more than the aid their parents are providing them, they may no longer qualify as a dependent for tax purposes. Thus, they would be required to file their own taxes.

NIL presents incredible opportunities for college athletes. However, to fully leverage these opportunities, it’s important for college athletes and their advisors to be educated on important tax considerations.

Disclaimer: If you need tax help, reach out to a certified tax professional in your area. This article is not tax advice, nor is its author a tax professional. This article is also not legal advice and does not establish an attorney-client relationship. If you are in need a legal counsel, please reach out to a licensed attorney in your state.