Most athletes were never taught how taxes work, yet earning NIL income can create real tax responsibilities — even for students and first-time earners. NIL has created financial opportunities that previous generations of athletes never had, but without proper planning, that income can also lead to unexpected tax bills and unnecessary financial stress.

This guide isn't meant to make taxes intimidating. It's designed to help athletes and families understand what happens when NIL money starts coming in, what responsibilities may come with it, and how to prepare before tax season arrives. Understanding these obligations early can help athletes make better financial decisions, stay organized, and keep more of what they earn through legitimate tax planning.

NIL income can come from more places than athletes realize. It isn't limited to large sponsorships or major brand deals. Money, products, and other compensation received in exchange for using your name, image, likeness, audience, or services may create taxable income.

Many common NIL activities are performed as an independent contractor and may be reported on Form 1099-NEC. Other types of NIL income, such as certain royalties or licensing payments, may be reported differently depending on the arrangement.

The important thing to remember is simple: the tax form does not determine whether income exists. Athletes are responsible for keeping accurate records of what they earn, even when no tax form is received.

NIL income encompasses a wide variety of revenue streams, and athletes are often surprised by just how many different types of payments qualify. Understanding what counts as taxable NIL income is essential because the IRS expects you to report all income, even if you don't receive an official tax form for it. Here are the most common types of NIL income athletes receive:

A business deduction is generally an expense that is ordinary and necessary for your NIL business. When legitimate business expenses are properly tracked and deducted, they can reduce your net business profit — which may reduce the amount of income subject to tax.

$20,000 NIL Income
− $3,000 Qualified Business Expenses
= $17,000 Net Business Profit

The key is that an expense must actually be connected to your NIL business. Buying something does not automatically make it a tax deduction just because you are an athlete or content creator.

Depending on the athlete's specific NIL activities, potential business expenses may include:

Personal expenses generally aren't deductible simply because you earn NIL income.

Examples may include:

Self-employed taxpayers may generally deduct the employer-equivalent portion of self-employment tax when calculating adjusted gross income.

This deduction does not reduce the self-employment tax itself. Instead, it may reduce the amount of income subject to federal income tax.

Keep receipts, invoices, mileage records, and other supporting documentation throughout the year.

When athletes hear “taxes,” they may assume there is one percentage applied to everything they earn. In reality, NIL income can be affected by multiple types of taxes, and each one works differently.

Understanding where those taxes come from makes it much easier to estimate what you may owe and plan before the money is spent.

Many people think taxes are one flat percentage, but the reality is more complex. There are actually different types of taxes that apply to your income, and understanding each one helps you plan better and avoid surprises when you calculate what you might owe.

IRS Resource: Federal Income Tax Brackets

Before calculating taxes, there are two important concepts to understand: filing status and the standard deduction. Both can affect how your federal income tax is calculated.

Your filing status helps determine your tax brackets, standard deduction, and eligibility for certain tax benefits.

For many college athletes, Single will be the applicable filing status. However, being “Single” and being claimed as a dependent by a parent are two different things.

Being claimed as a dependent does not automatically make NIL income tax-free or eliminate an athlete's responsibility to file when a tax return is required.

Think of the standard deduction as an amount that can reduce the income subject to federal income tax. For tax year 2026, the standard deduction for a Single filer is generally:

However, athletes who can be claimed as dependents may be subject to different standard deduction rules. This is especially important for college athletes who are still supported by their parents.

Assume an athlete qualifies for the full $16,100 Single standard deduction and has:

$20,000 of income before the standard deduction

$20,000 − $16,100 = $3,900

That leaves $3,900 of income before applying the applicable federal income tax rates, assuming no other adjustments, deductions, or tax rules affect the calculation.

Let's put everything together with a realistic example. This shows why an athlete can still owe taxes even after deducting business expenses and using the standard deduction.

The athlete earned $30,000 from NIL activities such as brand deals, sponsorships, and social media promotions. They also had $5,000 of qualified business expenses.

That leaves:

$30,000 − $5,000 = $25,000 Net Business Profit

Self-employment tax is generally calculated on 92.35% of net self-employment earnings.

$25,000 × 92.35% = $23,087.50

Now apply the 15.3% self-employment tax rate:

$23,087.50 × 15.3% ≈ $3,533

This is important because the standard deduction does not reduce self-employment tax.

This is an important tax benefit many first-time NIL earners don't know about.

You can generally deduct the employer-equivalent portion — approximately half of your self-employment tax — when calculating your federal adjusted gross income.

Simplified Example:

$3,533 ÷ 2 ≈ $1,766

Then:

$25,000 − $1,766 = $23,234

This deduction does not reduce the $3,533 of self-employment tax itself. It helps reduce the income used to calculate federal income tax.

Assume the athlete qualifies for the full $16,100 standard deduction for a Single filer in 2026.

$23,234 − $16,100 = $7,134 Taxable Income

For 2026, the first $12,400 of taxable income for a Single filer falls within the 10% federal income tax bracket.

Because this athlete only has approximately $7,134 of taxable income:

$7,134 × 10% ≈ $713

State income tax may apply in addition to the estimated federal taxes above.

State tax rules vary based on factors such as where you live, where income is earned, applicable deductions, and other individual circumstances. Some athletes may also have filing responsibilities in more than one state.

The athlete earned $30,000, had $5,000 in qualified business expenses, and could still have an estimated federal tax obligation of approximately $4,246 under these simplified assumptions — before considering any applicable state income taxes.

Even though the athlete's estimated federal income tax is only $713, their total estimated federal tax is approximately $4,246 because of the additional $3,533 in self-employment tax.

This is why NIL athletes should consider setting aside 25–30% of each NIL payment for taxes until they understand their individual tax situation. The biggest surprise isn't always income tax but instead its the self-employment tax that can add up quickly.

Good tax planning starts long before you file your return. Keeping your NIL records organized throughout the year can save time, reduce mistakes, and make tax season much easier.

You don't need a complicated system. Create a few digital folders and update them whenever money comes in or a business expense occurs.

Most individual tax returns must be filed by April 15 each year. If you miss this deadline and owe taxes, penalties and interest immediately begin accumulating. Even if you can't afford to pay your full tax bill, file your return on time anyway. The penalty for filing late is much steeper than the penalty for paying late. You can set up payment plans with the IRS if needed, but you must file first.

The federal tax system generally works on a “pay-as-you-go” basis. This means taxes may need to be paid throughout the year instead of waiting until you file your tax return.

For W-2 employees, taxes are generally withheld from each paycheck. With NIL/self-employment income, taxes often aren't withheld — so athletes may need to make estimated tax payments themselves.

Generally, estimated payments may be required when you expect to owe $1,000 or more in federal tax after subtracting applicable withholding and refundable credits.

Earlier, our athlete had an estimated federal tax obligation of approximately:

$4,246

If we simply divided that estimated annual amount into four equal payments for illustration:

$4,246 ÷ 4 ≈ $1,062 per payment

This is a simplified example, not a universal quarterly payment calculation. Actual estimated payments depend on your income throughout the year, withholding, credits, prior-year taxes, and other individual circumstances.

As NIL income grows, athletes may consider forming an LLC or electing S corporation tax treatment. These structures can be useful in the right situation, but they aren't automatically necessary just because you earn NIL income.

An LLC can provide a formal structure for NIL business activities, help separate business and personal finances, and may provide certain legal liability protections when properly established and maintained.

Important: Creating an LLC does not automatically lower your federal taxes. A single-member LLC is generally taxed like a sole proprietorship by default unless another tax treatment is elected.

An S corporation is a federal tax election that may provide potential payroll-tax advantages for certain higher-earning athletes.

However, an owner who performs services for the business generally must receive reasonable compensation through payroll before taking non-wage distributions.

S corporations also come with additional responsibilities, including payroll, separate tax filings, bookkeeping, recordkeeping, and additional professional costs.

You don't need an LLC or S corporation just because you earn NIL income. As your NIL business and profits grow, professional guidance can help determine whether a different structure makes sense.

Remember to track what you earn. Document what you spend. Set money aside. File on time. Good habits throughout the year can make tax season much easier.

The IRS provides free tools to help you estimate taxes and make payments: