Savanna Hoffman
Student athletes in the US have to navigate a complex tax landscape, especially when it comes to NIL (Name, Image, and Likeness) deals. NIL deals allow student athletes to profit from their name, image, and likeness through endorsements, sponsorships, and other activities. While these deals provide new revenue streams for student athletes, they also come with tax implications. The tax obligations of student athletes depend on various factors, including their residency status, the state they earn income in, and the nature of their income. For example, international student athletes on an F-1 visa may face restrictions on the type of income they can earn. Additionally, NIL income is generally considered taxable income, and student athletes may need to pay self-employment taxes if their net earnings exceed a certain threshold. Understanding and fulfilling their tax responsibilities are crucial for student athletes to avoid penalties and maintain compliance with tax laws.
| Characteristics | Values |
|---|---|
| Student athletes' NIL income | Taxable |
| Tax rate | 30% where no tax treaty applies |
| Tax documents | 1099-K, 1099-MISC, 1040-NR, 8843, W-4, W-9, 1099 |
| Scholarship | May be taxable |
| Non-qualified scholarship | Taxable at 14% |
| F-1 visa | Does not authorise international student-athletes to pursue NIL income opportunities |
| NIL income in multiple states | May have to file multiple state tax returns |
| NIL income and self-employment | Combined for SE tax purposes |
| NIL income and federal tax | May need to make quarterly estimated tax payments to avoid penalties |
| NIL income and deductible expenses | Can deduct ordinary and necessary business expenses |
| NIL income and cryptocurrency | Fair market value must be reported as income |
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What You'll Learn
Student athletes and self-employment tax
Student athletes are considered independent contractors or self-employed, and their NIL (name, image, and likeness) income is treated as self-employment income. This means that they must pay self-employment taxes if their net earnings exceed $400 in a tax year. The self-employment tax rate is 15.3% (12.4% for Social Security and 2.9% for Medicare).
It is important to note that student athletes are not typically employees of the companies that pay them, so their earnings do not have income tax withheld from them. As a result, they may need to make quarterly estimated tax payments to avoid penalties. Student athletes can deduct ordinary and necessary business expenses related to their NIL income, such as travel, marketing, and professional fees. They should maintain detailed records of their NIL income and related expenses to accurately report their earnings and claim relevant deductions to reduce their taxable income.
In terms of residency status, nonresident aliens must only pay federal tax on US-sourced income and file tax documents for each year they spend in the US. On the other hand, resident students must pay taxes based on their resident state, which is typically the state where they permanently reside or where their parents live. If a student-athlete receives NIL income in multiple states, they may have to file multiple state tax returns, but they won't be double-taxed thanks to reciprocity agreements or credits for taxes paid to other states.
Additionally, athletic scholarships that cover room and board fees are considered income and are taxable at 14% by the IRS. However, if the scholarship is exclusively for tuition and textbooks, it is tax-free.
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International student athletes and non-resident tax
International student athletes in the US are typically considered nonresidents for tax purposes. This means that they are legally obliged to file a federal tax return, even if they have not earned an income. They may also be required to file a state tax return, depending on their circumstances. International students are generally not entitled to earn active or 'earned' income, which includes salaries, wages, and commissions. However, they are allowed to earn passive income, such as earnings from rental properties, royalties, and savings account interest.
If an international student athlete is receiving a scholarship, it is important to note that athletic scholarships that exclusively cover tuition and textbooks are considered tax-free. However, if the scholarship covers room and board fees, the portion of the scholarship designated for these expenses may be considered taxable income.
NIL (Name, Image, and Likeness) income for nonresident student athletes is typically taxable at 30% where no tax treaty applies. This includes income from endorsement deals, social media content, and personal appearances. International students should be cautious about accepting certain types of NIL income, as it may be considered unauthorized employment and could violate the terms of their visa.
To ensure compliance with tax regulations, international student athletes should consult with a tax professional or seek advice from the United States Citizenship and Immigration Services (USCIS) or the Department of State. Additionally, they should maintain detailed records of their income and expenses to accurately report their earnings and claim relevant deductions.
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NIL income and tax forms
The tax landscape for student athletes in the US has changed significantly in recent years, with the introduction of NIL (Name, Image, and Likeness) rights allowing college athletes to earn money through endorsement deals and other opportunities. This has created a need for student athletes to navigate complex tax obligations, particularly as many of them are first-time filers.
NIL Income
The IRS considers NIL income to be taxable income. This includes not just cash payments but also non-cash compensation such as cars, vacations, sports equipment, NFTs, and other items of value. Student athletes are generally classified as independent contractors, and their NIL income is considered self-employment income. This means that they are responsible for paying self-employment taxes, which include Social Security and Medicare. It's important to note that even international student athletes attending school in the US are not exempt from these tax filing requirements.
Tax Forms
The specific tax forms a student athlete needs to complete may vary depending on their income sources and their residency status. Here are some of the most common tax forms relevant to NIL income:
- Form 1099-NEC (Non-Employee Compensation): This form is used to report non-employee compensation, such as endorsement deals or royalties, totalling $600 or more in value.
- Form 1099-MISC: This form is used to report miscellaneous income, such as prizes or awards, also with a value of $600 or more.
- Form 1099-K: Cash payments received through third-party payment platforms like Cash App or PayPal are reported on this form if they exceed certain thresholds $5,000 in 2024 and $2,500 in 2025.
- Form 1040: This is the standard federal income tax return form. Student athletes may need to file this form, along with Schedule C, to report their NIL income and expenses.
- Form 1040-NR: Nonresident aliens typically need to file this form to report their NIL income.
- Form W-4: If a student athlete is considered an employee, they would complete this form, the Employee Withholding Certificate.
- Form W-9: As most student athletes are considered independent contractors, they would typically complete this form, the Request for Taxpayer Identification Number and Certification.
Additional Considerations
It's important to note that state tax laws vary, and some states do not impose an income tax. Student athletes who earn NIL income in multiple states may need to file multiple state tax returns. However, they won't be double-taxed thanks to reciprocity agreements and credits for taxes paid to other states. Additionally, some cities and counties collect local income tax, further complicating tax obligations.
Student athletes and their families should also be aware of how NIL income can impact their eligibility for financial aid, need-based awards, and educational tax credits. NIL income may affect their status as a dependent, and it's essential to consider the potential tax consequences when planning for tax payments.
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Scholarships and taxable income
Scholarships are generally considered tax-free if they are used for educational expenses. This includes tuition fees, books, supplies, and equipment required for courses at the institution. However, if the scholarship exceeds these educational expenses, the excess amount may be considered taxable income. For example, if a scholarship covers room and board fees, it is typically considered taxable income by the IRS. International student athletes should be aware that their scholarships may be subject to US tax laws, depending on their residency status and visa type.
The tax status of scholarships has evolved over time. Prior to 1980, scholarships were considered entirely tax-free for students pursuing a degree, regardless of how the funds were spent. However, with the passage of the Tax Treatment Extension Act in 1980, amendments, and reforms, the landscape changed. Today, scholarships that exceed qualified educational expenses or are designated for non-qualified purposes may be subject to taxation.
It is important to note that the taxability of scholarships depends on specific conditions set by the IRS. To be considered tax-free, the scholarship recipient must be a degree-seeking candidate at a qualified educational institution, and the funds must not exceed or be designated for non-educational expenses. Additionally, the scholarship must not represent payment for work or services performed.
In terms of tax filings, scholarship recipients may need to include any taxable portion of their scholarship in their gross income calculations. They may also need to make estimated tax payments on the additional income. It is recommended to consult with a tax professional or utilize tax software to accurately determine the taxability of scholarships and ensure compliance with tax laws.
For student athletes, the tax implications can become more complex. NIL (Name, Image, and Likeness) income is generally considered taxable, and student athletes may receive various tax forms depending on the type of compensation they receive. They may also need to file multiple state tax returns if they earn income in different states. Additionally, international student athletes on specific visas may have restrictions on the types of income they can earn.
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Taxable income and deductions
The tax landscape for student athletes has changed significantly in recent years, with the National Collegiate Athletic Association (NCAA) allowing student athletes to benefit from their name, image, and likeness (NIL). This has opened up new revenue streams for student athletes, but it also comes with tax obligations.
Taxable Income
Any money, goods, property, or services received from NIL activities are considered taxable income. This includes cash payments, cryptocurrency, and non-cash benefits such as free products or services received in exchange for an endorsement. NIL payments are typically treated as self-employment income, and student athletes are generally considered independent contractors. Therefore, they must pay self-employment taxes on net earnings over $400, including the employer and employee portion of FICA and Medicare taxes, which total 15.3% of income up to the FICA cap of $168,600 (as of 2024) and 2.9% on any income above this cap.
If a student athlete is considered an employee, they should complete Form W-4, while independent contractors should complete Form W-9. Additionally, student athletes may receive different tax forms depending on the payment method, such as Form 1099-NEC or 1099-K for cash payments received through a third party. It is important to note that NIL payments do not usually have taxes withheld, so student athletes should make estimated tax payments throughout the year to avoid penalties.
Deductions
Student athletes can reduce their taxable income by deducting qualified business-related expenses. These include ordinary and necessary business expenses directly related to their NIL income, such as travel, marketing, professional fees, and advisory fees. Additionally, they can take advantage of tax credits such as the American Opportunity Tax Credit (AOTC), which can offset the cost of college and offer up to $2,500 per year for qualified education expenses.
For international student athletes, it is important to consider residency status, as nonresidents are only required to pay federal tax on US-sourced income and may have different tax obligations. Additionally, athletic scholarships that cover room and board fees may be considered taxable income, while scholarships for tuition and textbooks are typically tax-free.
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Frequently asked questions
Student athletes are subject to paying taxes on their income. This includes NIL (Name, Image, Likeness) compensation, which can come in the form of cash, non-cash payments, or even cryptocurrency.
NIL deals allow student-athletes to profit from their name, image, and likeness. This can include endorsement deals, sponsorships, social media promotions, autograph signings, and appearances. These earnings are typically treated as self-employment income, and student athletes are considered independent contractors.
Student athletes may need to file multiple state tax returns, depending on where they earn income. They are generally required to report all earnings and can deduct business-related expenses to reduce their taxable income. Student athletes should carefully track their earnings and expenses to ensure accurate reporting and avoid underpayment penalties.
International student athletes on an F-1 visa are typically not authorized to pursue NIL income opportunities. However, if they receive income through social media platforms or other sources, it may be considered taxable in the US. Nonresident aliens are subject to federal tax on US-sourced income and must file tax documents for each year spent in the country.
Athletic scholarships that exclusively cover tuition and textbooks are generally tax-free. However, if the scholarship covers room and board fees, it may be considered taxable income by the IRS. In such cases, student athletes may be entitled to a refund, depending on their total scholarship amount and annual income.
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