Recently, the US Supreme Court ruled that college athletes can be compensated for their name, image, and likeness (NIL).
Now, for 2023, there will be some college athletes who will need to introduce themselves to the world of reporting and paying tax on their income, perhaps a bit earlier than such athletes used to do in the past. Professional athletes are paid enough that they can afford to have an army of tax accountants keeping their reporting requirements on the up and up. Student athletes earning much less than their professional “big brothers and sisters” may not know how to keep track of their income and expenses, let along tax filing and reporting requirements.
I should point out that a few “lucky” college athletes have been known to earn only about $1 million. Hey! Compared to a professional quarterback earning $5-10 million a year, that is much smaller!
Most NIL income comes from a variety of opportunities, including autograph signings, speaking engagements and hosting sports camps and training clinics. (There! If you are a student athlete who hasn’t started earning NIL income yet, there are some ideas for you to pursue.)
Every student athlete earning NIL income should have a good record keeping system (normally, QuickBooks Online) to record all income, and expenses. They should have a separate bank account and credit card to run their NIL activities through. Getting NIL activities mixed up with scholarships, tuition, living expenses, etc. is not a good idea.
Some basic expenses to track include auto miles, meals, travel costs, fees paid to agents and other professionals, etc.
NIL income is considered self-employed income, which is subject to self-employed tax as well as regular federal income tax. The self-employed tax rate is 15.2% on the first 168,600 in 2024. After that, the rate drops to 2.9% for all income over that amount.
Just like small business owners, it is highly suggested that any student athlete earning enough NIL to incur a tax liability, to seek out professional tax advice and assistance.
As an example, let’s say “Bo” is a college athlete for UNR and earned $200,000 in NIL income in 2023. Bo incurred about $25,000 in NIL related expenses, thus having net taxable income of $175,000. As a single filer, his total tax would be $46,536. Bo also didn’t save anything for paying taxes, instead, he spent it all on a new Ferrari. Bo will have to enter into an installment arrangement with the IRS and also start paying quarterly estimated tax payments from now on. For 2024, he will need to pay at least $10,471 a quarter to avoid underpayment of estimated tax penalty, on top of making monthly installment payments on his 2023 tax. Bo just got an education on being a taxpayer!
Have you heard? 2 Samuel 22:40 says, “For you have armed me with strength for the battle. You have subdued under me those who rose up against me.”
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