The first NIL payment feels like a win, and it is. The tax bill that follows is the part nobody mentions.
Here is what catches athletes off guard. NIL money almost always arrives with zero withholding taxes to offset income. A brand or a company pays athletes the full amount, and the IRS treats the revenue payments as self-employed income. That means income tax plus self-employment tax of 15.3% on net earnings will calculate the tax liability for the year. At the end of the year the payer (brand / company) should issue the payee (athlete) a 1099-NEC (nonemployee compensation) reporting the total amount paid. A 1099 may or may not show up, but the income is taxable and reportable either way.
A few other things surprise people:
• Estimated tax payments are due quarterly, not just in April.
• Games and appearances in other states can create nexus that requires additional state reportable income.
• If the athlete is still a dependent on their parent's return it can change the tax filing structure.
The good news is that NIL income has room for planning, because there are real expenses that are deductible against the revenue:
• Agent fees, training, travel, equipment, photography, and marketing tied to your deals can reduce what is taxed.
• Clean records from the first deal make every deduction easy to support.
• Depending on the amount, an S corporation, a retirement plan, or paying a family member for real work can change the math.
• Setting aside a fixed percentage of every payment keeps April from turning into a crisis.
The mistake we see most often is spending the whole check first and sorting out taxes later. A surprise tax bill is often avoidable, but only if planned with an experienced Tax advisor before the year ends.
Book a Free 30-minute Discovery call
https://calendar.app.google/yt5QvohHuanbzAu86
Written by
Dwayne Ailey, EA, Top Notch Accounting Svs, LLC
“This article is for general purpose use only; not legal tax advice please contact us for more information to your situation."