For decades, National Collegiate Athletic Association rules prohibited student-athletes from earning income connected to their athletic reputation, even as universities, conferences and media companies generated billions of dollars from college sports.
This framework began to change in the late 2010s as courts, lawmakers and public opinion increasingly questioned whether preventing athletes from monetizing their own name and likeness was equitable. A series of state-level Name, Image and Likeness laws — starting with California's Fair Pay to Play Act — pressured the NCAA to modernize its rules. In response, the NCAA adopted an interim NIL policy effective July 1, 2021, allowing athletes to earn compensation for endorsements, sponsorships, appearances, social media activity and other NIL-related activities while maintaining eligibility.
NIL income is not a scholarship or stipend — it is taxable compensation. From a tax standpoint, NIL income should be treated no differently than income earned by entrepreneurs, entertainers or professional athletes. As a result, young athletes must think beyond short-term cash flow and begin treating NIL income as part of a broader financial and tax planning strategy from the outset.
Understanding NIL compensation
NIL rules now allow collegiate athletes to earn income from endorsements, sponsorships, appearances, social media activity, camps, merchandise and licensing deals without risking their NCAA eligibility as would have happened in the past. NIL compensation can range from a few hundred dollars annually to six- or seven-figures for top athletes in high visibility sports.
If you have clients or clients' children earning NIL money, remind them that NIL income is real taxable income and should be treated like a small business from day one to ensure tax efficiency and long-term economic stability. That means most NIL income must be treated as self-employment income and reported on Schedule C, unless a separate entity (such as an S corporation) is formed. Forming a separate entity is generally recommended for athletes earning larger sums and multi-year payments, whether from NIL income or from future marketing deals as professionals. NIL income is subject to federal (up to 37%) and, generally, state income tax (up to 13.3% in California, 11% in Hawaii, and 10.9% in New York for instance), as well as self-employment tax (up to 15.3%) There are a variety of other specialized taxes that could apply to an athlete. Quarterly estimated tax payments may be required, even if no Form 1099 is issued to the student athlete.
Most student-athletes are not the starting quarterback, point guard or top gymnast for nationally ranked Division I teams. They may only earn modest amounts — ranging from a few hundred to several thousand dollars annually — from local endorsements, autograph sessions or small social media partnerships. For these athletes, NIL income may simply supplement living expenses or savings and may not create any significant tax obligation.
At the elite end of the spectrum, however, NIL compensation has reached levels comparable to the early-career earnings that a young athlete would earn as a pro. High-profile athletes in football, basketball, baseball, gymnastics and other nationally visible sports may earn six- or seven-figure annual NIL income through a combination of brand endorsements, licensing agreements, social media monetization and equity-based arrangements with emerging companies. In some cases, NIL income exceeds the athlete's future rookie-year professional salary.
This wide disparity makes tax planning especially important. Athletes with significant NIL income must plan not only for current income taxes and self-employment taxes, but also for long-term wealth preservation, including lawsuit protection. These concepts may seem foreign to most 18-to-23-year-olds. Without proper planning, however, short-term NIL success can lead to unexpected tax liabilities, missed investment opportunities and long-term financial inefficiencies.
The state residence and domicile of the athlete at the time they receive their NIL income is complex and can have a significant impact on the after-tax amount they receive. Therefore, advance planning is important prior to receiving NIL compensation or entering into a professional contract in the future.
Deductible expenses against NIL income
Like most small businesses, athletes may deduct ordinary and necessary business expenses directly related to their NIL activities, but personal expenses are not deductible. Therefore, it's important to ensure the young athletes you work with know that proper documentation is critical.
Here are common deductible categories:
Source: HCVT LLP
Recordkeeping and compliance
Athletes should maintain a separate bank account for NIL income and related investment accounts in order to track income and expenses monthly. If an LLC is formed, make sure the NIL deposits and business expenses run through the LLC's bank account, which would be under the name and tax identification number of the LLC.
Make sure young athletes save all contracts and receipts and retain copies of tax forms. Strong recordkeeping reduces audit risk and supports deductions.
Entity structuring basics
As NIL income grows, athletes may consider forming a single-member LLC for liability protection or, in some cases, an S corporation. Doing so can save payroll taxes and allow for more flexible qualified retirement plan funding, but there are recurring and non-recurring costs to consider. Additionally, an LLC can make a tax election to be treated as an S corporation for income tax purposes.
Entity structuring is complex and has long-term implications for the athlete. Decisions should always be made with professional tax guidance. Additional entity planning is discussed
Long-term planning considerations
Higher-earning athletes may benefit from retirement planning (such as SEP-IRAs, solo 401(k)s, etc.), estimated tax planning, multistate tax analysis and advanced investment strategies commonly used by professional athletes and entertainers.
Elite collegiate athletes who have significant NIL income often face tax challenges similar to those of professional athletes and entertainers. In addition to managing current income taxes, these athletes frequently accumulate capital gains from personal investment portfolios, private equity interests, digital assets or the sale of other assets. Thoughtful long-term tax planning can allow athletes to reinvest these gains in a highly tax-efficient manner.
One advanced strategy involves the use of Qualified Opportunity Funds under the federal Opportunity Zone program. Under current law, capital gains from stocks, partnerships, real estate or other investments may be reinvested into a QOF within a prescribed timeframe. By doing so, the athlete can defer recognition of the original capital gain and, if the investment is held for at least 10 years, potentially eliminate federal (and in the majority of states) capital gains tax on future appreciation.
Importantly for elite athletes, a QOF does not have to be a third-party real estate fund. In many cases, athletes can establish and invest in their own "captive" QOF, provided the fund complies with statutory and regulatory requirements. This allows athletes to maintain greater control over investment strategy while still accessing the tax benefits of the OZ program. Further, they can gain the satisfaction of reinvesting in underserved communities, and OZ structures can offer unique planning opportunities for athletes who create or own intellectual property and sports memorabilia.
Guidance for parents and advisors
Parents, CPAs, attorneys and wealth advisors each play a critical role in helping student-athletes navigate NIL income responsibly. And it's important they work together.
Key considerations include:
- Ensuring taxes are planned for and paid on time;
- Monitoring cash flow and savings;
- Tracking NIL-related expenses incurred by the parent, the athlete or other person in order to reimburse and tax deduct such amounts;
- Helping evaluate contracts and compensation structures;
- Avoiding aggressive or inappropriate tax strategies;
- Coordinating with qualified CPA and legal professionals; and
- Ensuring adequate insurance coverage.
Early education and disciplined planning can prevent costly financial mistakes and help athletes focus on academics and athletics.
Thanks to NIL income, hardworking student-athletes are finally receiving compensation for the considerable revenue and recognition they bring to their universities. Whether the amounts are three-figures or seven-figures, all NIL income is taxable and should be treated like a business. The young athletes you work with should track income and expenses carefully, plan for taxes early, and work with experienced advisors to protect eligibility and long-term financial success.
