This year, college basketball and tax season will collide like never before, as many student-athletes across the nation who earned income from their name, image, and likeness (NIL) will have to file taxes for the first time. TaxAct’s tax expert, Jackson Echols, has all the information those players need to know about filing this season.
What is NIL income?
Starting in 2021, NCAA policy changes allowed athletes to begin earning income for the use of their name, image, and likeness (NIL). This change is a significant opportunity for college athletes, allowing many to secure brand endorsements in 2022. However, the tax implications can be confusing and pose unique challenges for student-athletes, particularly if they are new filers.
Types of NIL income
NIL income is taxable, meaning it must be reported on a tax return and is subject to individual income tax. Generally, NIL income falls into two categories: “monetary” and “non-cash.”
Monetary compensation includes payments made to an athlete for endorsements, appearances, sponsorships, social media partnerships, and autograph signings.
Non-cash compensation can be more challenging to identify. “All ‘freebies’ received for endorsement deals – like free cars, trips, apparel, athletic equipment, and even cryptocurrency – are also taxable”, Echols explains.
While this may seem like a confusing process, DIY tax software, like TaxAct, makes filing as simple as possible, says Echols.
What forms do you need?
According to the IRS, when generating NIL income, college student-athletes are independent contractors, and their NIL income is self-employment income. This comes with a few logistical considerations when dealing with companies on NIL deals, including which form to file with.
There are primarily two necessary tax forms: the 1099-NEC and the 1099-K.
“If NIL compensation from a company exceeds $600 in value, that company must send the athlete a Form 1099-NEC,” explains Echols. The 1099-NEC details the payment
amount and the value of the goods received by the athlete.
However, if payment is received through a third-party platform, such as PayPal or Venmo, a Form 1099-K may be sent instead.
Depending on the number of brand deals, the number of forms can vary, but all income should be accounted for. “Information from all forms received must be reported when filing a tax return,” says Echols.
Staying organized is key
Keeping all tax documents organized is essential as the number of forms needed to file may vary. Additionally, athletes who have a net income of $400 or more need to pay self-employment taxes. Self-employment taxes are 15.3% of the net income. Therefore, it’s essential for college athletes to keep all financial and tax documents as well as relevant receipts organized and in a safe place to save time, stress, and hassle when filing a tax return. Being able to reference a receipt for an expense related to their work with brands or companies can help reduce their tax liability and the amount of self-employment tax that is owed. Echols emphasizes TaxAct makes it simple for college athletes to navigate this new tax situation and affordably file with ease and confidence.