Name, image, and likeness rights are a great development for college athletes…but being able to earn NIL money means college athletes need to become increasingly vigilant about their finances. That includes taxes–but this doesn't have to be scary. Even though college students who earn NIL money are required to quickly learn tax terms and how to file a tax return, once they get the basics, much of the process falls into place. While it is always beneficial to sit down with a Certified Public Accountant or financial planner, here are some of the basics regarding the financials of NIL. 

Multiple forms of NIL compensation are taxable. 

Cash payments, car payments or the use of a leased car, merchandise, non-fungible tokens, and gift cards are all taxable. This means that the total amount of each of these categories that an athlete is paid must be reported on their tax return. Because any net income is considered taxable income, it must be reported. 

NIL earners are most likely paid as independent contractors. 

College athletes who provide their personal brand to another entity for use are most likely paid as independent contractors. In other words, this means that the employer has the right to control the work that is performed but the employee is able to decide when and how the work they do will be performed. An organization that hires an independent contractor does not withhold income, Social Security, and medicare taxes. Due to this, the  athlete is required to make the employee and employer payments of federal and state Social Security and medicare taxes. 

Related: Managing your Money as a Student-Athlete with NIL Contracts

There are multiple types of taxes for NIL earners

There are three different kinds of taxes for NIL earners that must be paid, including the self-employment income tax, state income tax, and federal income tax. The self-employment tax must be paid because the income that a college athlete generates is considered self-employed income. The state income tax is usually paid in the state in which the athlete resides. The federal income tax usually contains a standard deduction, based on the type of tax return that an individual files. 

Related: NIL Opportunity or Inducement?

NIL earnings might affect a student-athlete's financial aid

Since NIL earnings are taxable, they are reported on the Free Application for Federal Student Aid (FAFSA), which has the potential to affect an athlete's financial aid. So be sure to confirm with your university's financial aid office before you enter any NIL deal and make sure that your side hustle will not affect or alter their financial aid. 

The deadline to file a tax return is April 15 of each year. 

The deadline for a person to submit their tax return is April 15 of each year. Sometimes, though, an extension may be necessary for the tax return to be completed. A request for extension must also be filed by April 15 of each year, so mark your calendar! 

Remember: all college athletes with NIL deals should be prepared to effectively and efficiently file their taxes. While sitting down with a Certified Public Accountant or financial planner is encouraged, these few simple tips can also be beneficial. Welcome to adulthood!

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* Originally published on August 29, 2022, by Caleb Myers