Following NCAA regulatory changes and state-level laws, student-athletes are making more money from their name, image, and likeness (NIL) than ever before. However, with this surge of monetization comes a new challenge: managing the complex tax consequences of NIL income—for both students and the alumni, benefactors, and collectives who support them.
With each passing tax season, it becomes evident that both athletes and donors want professional help to prevent costly mistakes.
NIL: New Opportunities, New Liabilities
Many students have taken advantage of the NCAA's July 2021 reforms, which allow athletes to earn money through sponsorships, social media promotions, signatures, and other NIL-related activities. According to On3 NIL estimates, some top-tier athletes in "power conferences" are now making hundreds of thousands, if not millions, of dollars each year.
However, the Internal Revenue Service treats that income as any other: it is taxable.
As Poole College of Management professor Nathan Goldman points out in his paper, NIL income can easily result in considerable tax liabilities, especially for students who are unaware they may be required to pay quarterly estimated taxes. "It's critical that student-athletes understand they are effectively running small businesses now," Goldman points out. "They need to track income, save for taxes, and understand what qualifies as a deductible expense."
Common Tax Oversights by Athletes
Many athletes fail to:
● Save money for federal and state taxes.
● Keep track of potentially deductible expenses, such as travel, equipment, and training.
● Submit quarterly estimates, particularly for big NIL contracts.
A tax specialist can help athletes navigate compliance and avoid IRS penalties or audits.
The Donor Dilemma: Are NIL Contributions Deductible?
Athletes are not the only ones navigating the murky tax seas. The growth of NIL-focused collectives (donor-backed groups that combine cash to compensate athletes) has also caused uncertainty among donors.
Initially, some collectives were registered as 501(c)(3) charitable organizations, leading donors to assume their contributions were tax-deductible. However, in June 2023, the IRS published a memorandum that raised red flags: organizations that primarily benefit private individuals (such as student-athletes) are not considered charitable under IRS guidelines.
High-profile NIL collectives that were initially run under nonprofit frameworks, such as The Foundation, which supports athletes from Ohio State University, and Gator Collective, which was formerly affiliated with athletes from the University of Florida, were significantly impacted by this direction. In order to remain compliant and carry on with their activities, a number of collectives, including Texas One Fund for University of Texas athletes and Spyre Sports Group for the University of Tennessee, switched to for-profit or hybrid structures after receiving the IRS memo.
These instances highlight the significance of checking the tax status of any NIL-focused group before presuming a donation is deductible. Tax specialists should encourage donors to exercise caution, especially when making big contributions to collectives linked with powerful athletic schools such as Alabama, USC, or LSU, where NIL activity is frequently both visible and closely monitored.
IRS Memo Fallout
This means that contributions to most NIL collectives are not tax deductible unless the group clearly serves a charitable purpose unrelated to athlete compensation. The IRS declared unequivocally that "providing benefits to specific individuals—no matter how talented—does not constitute a charitable purpose."
In response, several collectives are transitioning to for-profit forms or reclassifying their purposes. Tax experts that serve donors or universities should encourage clients to examine their giving plans and confirm the tax status of any non-profit organization before claiming a deduction.
State Tax Issues: It’s Not One-Size-Fits-All
The ramifications for state taxes complicate the situation even more. Some states have varied income tax treatments for scholarships, endorsements, and self-employment income, all of which may affect student-athletes differently depending on where they live or attend school.
For example, in California, NIL income is taxed as self-employment income and is subject to both state income tax and self-employment tax. Meanwhile, Florida, a state with no personal income tax, needs federal tax compliance and anticipated payments.
Cross-border athletes, particularly international students on visas, face significantly more complex withholding and treaty issues—areas where professional tax advice is required.
For professionals that advise athletes, benefactors, or school-affiliated groups, the NIL period gives a unique chance to provide value:
● Review NIL contracts from a tax lens.
● Teach clients about recordkeeping and anticipated taxes.
● Clarify whether collective contributions are deductible (or not).
● Evaluate entity structures for clients with NIL businesses or collectives.
The NIL landscape is changing rapidly, as is the tax code's response to it. As athletes become entrepreneurs and donors become quasi-investors, the demand for proactive, professional tax counsel has never been higher.
