As tax season looms, the intricacies of NIL taxes for student-athletes come into focus. In a recent webinar featuring Teamworks’ Kevin Barefoot, Enrolled Agent & TurboTax Expert Katharina Reekmans, and two collegiate NIL administrators – Bridget Perine – Assistant AD of Talent & Brand Management at Clemson, and Collin Stoecker – Assistant AD of NIL at Western Kentucky, we dove deep into the world of tax obligations for student-athletes, particularly in the context of NIL. Here is a recap of the topics discussed in this session to help you prepare your student-athletes for their tax filing.
Do Student Athletes Pay Taxes on NIL Earnings?
Yes! Student-athlete earnings through NIL deals are subject to income tax, just like any other earned wages. The problem is NIL earnings aren’t always as cut and dry as a summer job and deciding what qualifies as NIL earnings and determining its fair market value can be complicated.
Katharina Reekmans clarifies that NIL earnings don’t just include earnings from appearances or events. They also include brand deals and activities, products received from NIL activities, comped vacations or trips, and even some Alston Money, scholarships, or grants, if not used for qualified educational expenses.
For students who are unsure of the fair market value of a product or trip, Reekmans recommends looking up the cost to determine what an athlete would have paid for it on their own. Usually, if the fair market value is over $600, student-athletes can expect to receive a 1099 form that reports the value for them.
Keeping track of smaller earnings is equally important, and all deals, regardless of their size, can (and should) be documented in INFLCR. This way, administrators can also keep track of what students are reporting, allowing them to identify areas of confusion sooner rather than later.
What Expenses are Tax Deductible for Student-Athletes?
Bridget Perine noted that she sees many students making the same honest mistakes which actually result in student-athletes paying more taxes than necessary. Collegiate athletes who pay taxes on their total earnings without deducting expenses are often overpaying. Student-athletes can report a more accurate net income when expenses are tracked with the same care as earnings.
Qualified deductible expenses include those directly related to NIL deals. Commonly, this includes mileage, airfare, and lodging. The standard, though, is that these expenses should be “ordinary and necessary,” not extravagant. Purchases like a ring light or tripod used for creating content or fees associated with agents or apps can be deducted as well.
Reekmans points out that qualified expenses can also include costs shared between NIL activities and personal activities. “A common example is your cell phone,” she explains, and the key to writing off this expense is a realistic estimate of the percentage of use dedicated solely to NIL activities.
Collin Stoecker says his best advice to student-athletes is to keep track of expenses and usage as they go so that they aren’t backtracking at tax time. Using an app to sort receipts or track mileage can be an easy way to do this, but Stoecker still recommends consulting a tax expert any time there’s a question about expenses or deductions.
What Do Student-Athletes Need to Prepare for Filing Taxes?
Student-athletes with NIL earnings are considered self-employed and might receive a number of separate 1099s to document their NIL earnings. Student-athletes at schools with INFLCR will receive a single 1099 form that combines the income reported in the app earned from deals with Collectives and individual businesses, simplifying the process for student-athletes.
In addition to 1099 forms, student-athletes will need the following to file their taxes:
- W2 forms, if they are employed
- 1098 form for education or school expenses
- Prior year tax returns
- Receipts from NIL business expenses
Perine points out that student-athletes should also be prepared with other basic tax knowledge- like their social security number, where their tax forms are being sent, and whether their parents claim them as a dependent.
Most importantly, collegiate athletes need to anticipate how much they will owe in taxes. Stoecker recommends that students set aside 30% of their earnings to cover taxes. Perine recommends a similar amount and reminds her student-athletes that it’s always better to err on the conservative side, leaving extra money available at the end of the tax year rather than owing money they have already spent.
How Can Administrators Support Student-Athlete Knowledge of NIL Earnings?
With the NIL landscape constantly shifting, it’s important for administrators to provide students with learning opportunities specific to their state laws. Stoecker recommends that all student-athletes receive an orientation to tax expectations from day one, and he tries to drop in on each team at least once a week. Sometimes this is informal, and other times he provides a quick five-minute NIL stop-in after practices.
Perine helps to keep tax education top of mind by periodically sending mass communications via Teamworks and more targeted reminders to students who have reported earnings on the INFLCR app beyond a specific threshold.
A final important consideration for administrators is the impact of NIL earnings for international student-athletes. Administrators should take extra steps to provide international student-athletes with tax resources applicable to their specific situations. This could include sharing resources from Sprintax, a TurboTax partner, to provide non-resident tax filing options.
Final NIL Tax Tips for Student Athletes
Understanding the tax implications of NIL activities is essential for student-athletes. By staying informed, tracking expenses, and seeking expert guidance, student-athletes can navigate tax season with confidence and ensure compliance with IRS regulations. Here are a few final tips to remember:
- NIL student-athlete earnings are taxed as self-employed income.
- All INFLCR student-athletes have a TurboTax discount code available in the app.
- Student-athletes can export their NIL transaction history directly from the INFLCR app.
- The NIL Tax Checklist and Intuit TurboTax Creator Tax Center are great spots to get started.
- Student-athletes should never hesitate to contact a tax expert if they have questions.
