We have now been dealing with name, image and likeness payments to athletes for around five years, yet the IRS reports that compliance remains a significant problem. For many years, the rules of the National Collegiate Athletic Association prohibited college athletes from making money on their name, image, or likeness. Following a ruling by the Supreme Court in June 2021 that student athletes can be compensated for the use of their NIL, the world began to change.
Already in 2019, California had enacted legislation allowing college athletes to be paid for their NIL, initiating the court action. After the court ruling, many other states soon started to follow California's lead. In 2021, the NCAA revised its guidelines to allow NIL payments under certain rules.
As various states enacted their own NIL legislation, some of this state legislation conflicted with even the new NCAA guidelines. Although Congress has considered several issues with respect to the taxation of NIL income, no federal tax legislation has been enacted.
Income received from monetization of NIL is taxable and the student athletes are generally viewed as independent contractors earning money separately from their colleges and universities. However, questions continue to arise as to whether some student athlete compensation should be treated as wages subject to withholding.
For many of these student athletes, this may be their first exposure to needing to file tax returns, and to filing as an independent contractor, with issues such as completing a Form 1040 and 1040 Schedule C, paying self-employment taxes, and paying estimated taxes. They also must follow the guidelines of the NCAA and their state NIL statute and proceed carefully when those are in conflict.
Yet many athletes receiving NIL payments appear to be blissfully unaware of such obligations. Their parents may also be unaware of such obligations and unaware of some of the forms of NIL compensation their children are receiving. Athletes accustomed to athletic scholarships may not recognize the potential tax issues involved with accepting the use of a vehicle from an auto dealer college booster in exchange for participating in a couple of promotional ads for the dealership.
Organizations referred to as collectives have been organized to support efforts of student athletes at particular educational institutions to set up NIL arrangements. While some collectives were initially granted tax-exempt status by the IRS, in May 2023, IRS Memorandum AM 2023-004 called into question whether these collectives should be eligible for tax-exempt status on the basis that private benefits provided to student athletes are not an exempt purpose under the Internal Revenue Code. Subsequent private letter rulings have denied tax-exempt status. If tax-exempt status is not available, donors may be less inclined to fund these collectives.
A competition has developed to help attract the best athletes to a college or university by offering the best NIL opportunities, and some student athletes have factored NIL programs into their decision on the choice of a school. This competition is raising concerns about its impact on the development and growth of college sports.
In June 2025, an NIL settlement was reached that provided for direct revenue-sharing payments to athletes starting July 1, 2025. A College Sports Commission clearinghouse was created to clear fair market value ranges for third-party NIL arrangements. It is important for tax purposes that fair market value determinations for non-cash compensation be determined within 30 days of the receipt of such compensation.
College athletes
College athletes can make income from NIL in many different ways. This could involve endorsements of products or services, appearances at business or charitable events, social media posts, autograph fees, and sales of apparel or other goods with their name or likeness. Income from all of these activities is taxable income reportable on the student's or parents' federal, and perhaps state and local, tax returns.
The state and local tax returns required may depend upon where the NIL activities took place. College athletes in all states are permitted to earn income from NIL in line with NCAA guidelines. More than half of the states have adopted their own NIL legislation. Some states have modified or even repealed NIL legislation with a goal of making their states more attractive to athletes in their choice of colleges. Arkansas has created a state income tax exemption for NIL revenue-sharing arrangements.
Unless federal legislation is enacted, college athletes will need to tread carefully between differing state and NCAA rules. There may be limits as to how much help a college or university can give a college athlete with their tax obligations. There should at least be the possibility of referring student athletes to outside resources that can provide tax assistance.
Among the concerns college athletes will face are having the cash to pay the income taxes due and estimated taxes due, especially if a lot of the NIL is not received in the form of cash but instead in the form of products or services. The student athlete may receive 1099 forms from various NIL providers that will have to be reflected on the tax returns. The student athlete will be responsible not only for income taxes but also self-employment taxes. NIL activities may also affect the student athlete's eligibility for scholarships or other financial aid for college tuition and fees.
High school athletes
About half of the states have NIL legislation that also makes it possible for high school athletes to earn NIL. Although the NIL opportunities are probably not as great, these athletes are likely to be even more inexperienced and have even less advice and direction from a school.
Typically, a high school athlete cannot promote the connection to a team, school or school district. While outside of the jurisdiction of the NCAA, the ability to preserve amateur status may also be an issue in some states.
These students are less likely to have an organization created to help present NIL opportunities to the students, and the students and students' parents are even more likely to need professional advice on NIL activities and tax rules.
NIL collectives
Independent from colleges and universities, supporters of a particular school may have set up an NIL collective to solicit donations and help identify NIL opportunities for the student athletes of that school. These collectives had become popular in helping student athletes maximize their NIL potential and, in turn, attracting top athletes to a particular school. However, with the denial of exempt status to collectives, some collectives have been wound down and the role taken up by the educational institution itself.
If a charitable contribution is unavailable to a booster of the educational institution, a booster may seek to style NIL compensation to a student athlete as a deductible business advertising expense through use of an advertising agreement with the student athlete, specifying what promotional services will be performed in exchange for cash or non-cash compensation.
The NCAA
The revised NCAA NIL rules, while permitting college athletes to receive income from NIL activities, still try to prohibit earnings that look like pay-to-play at that particular institution. The guidelines address permissible and impermissible activities of the college or university. The NCAA is pushing for federal NIL legislation to try to help resolve the various conflicting rules in state statutes. In the meantime, student athletes may want to try to stay in compliance with both NCAA and state NIL rules.
The NCAA has continued to seek federal legislation to address the issues that have arisen and seek some greater consistency, rather than a race for a state to have the loosest rules in order to attract the best student athletes. Legislation was introduced to address NIL collectives in 2022; however, nothing has yet been enacted.
The IRS taking a second look at the tax-exempt status of these collectives may have been in part a response to such legislative efforts. In the meantime, as states seem to be not only enacting NIL statutes but also further revising them to be the most attractive to student athletes, federal legislation may be needed to make sure that the focus remains on the welfare of the student athletes and not the success of college athletic teams in a particular state.
Form 1099 (or W-2)
The Form 1099 may come from the educational institution, a collective, or a third-party clearing house. If receipt of the form in January of the next year is the first clue of a tax obligation, the tax situation may already be difficult. Estimated tax payments may have been missed, timely fair market value determinations for non-cash compensation may have been missed, and cash compensation may have been spent. Parents may not have been aware of all the NIL that the student athlete was receiving.
Tax professionals need to be alert to the possibility that their clients may be parents of student athletes or student athletes themselves. Alerting clients to potential NIL tax issues at the start of the year may be crucial in avoiding tax problems later on. The information returns are likely to arrive, but arrive too late to easily solve the NIL tax issues. Tax professionals should also be alert to possible conflict-of-interest issues in representing multiple parties in an NIL transaction, including the educational institution, the collective, the booster, and the student athlete.
