How is NIL income taxed?

Most NIL income is taxed as self-employment income. When a business pays your athlete for posts, appearances, or endorsements, no employer is withholding taxes from that payment. Your athlete is, in the IRS's view, running a small business, even if the whole business is three Instagram posts.

That classification has two consequences. First, the income gets reported on a tax return, typically on Schedule C for a sole proprietor. Second, it is subject to both ordinary income tax and self-employment tax.

Whose tax return does NIL income go on?

Your athlete's. NIL income belongs to the person who earned it, even if your athlete is still your dependent. Dependency affects who claims whom as an exemption, not whether the income is taxable or whose income it is.

In practice, this means your athlete may need to file their own return, sometimes for the first time in their life. That first return is a genuinely useful rite of passage, and a good moment to sit down together and walk through what a return actually is. Many families do the first one side by side, then hand the reins over gradually.

What is the 15.3% self-employment tax?

Self-employment tax covers Social Security and Medicare, the taxes an employer would normally split with a W-2 employee. When you are self-employed, you pay both shares: 15.3% of net self-employment earnings.

The threshold that matters: this tax kicks in once net self-employment earnings exceed $400 for the year. Net means after deductible expenses. So an athlete with $1,000 in NIL income and $200 in legitimate expenses has $800 of net earnings, and self-employment tax applies.

This is the tax that surprises families. An athlete can owe self-employment tax even when their income is low enough that they owe little or no income tax.

What is a 1099-NEC, and when does one show up?

A 1099-NEC is the form a business sends to report paying a non-employee $600 or more in a year. If a company paid your athlete $600 or more, expect a 1099-NEC in January, and expect the IRS to have a copy too.

Two traps to avoid:

• Under-$600 income is still taxable. The $600 line is a reporting threshold for the business, not a tax-free allowance. A $300 deal with no 1099 is still income your athlete should report.
• Free products can count. Gear, gift cards, and other non-cash compensation can be taxable at fair market value. Keep records of everything received, not just checks.

Note this is a different $600 line than the NIL Go disclosure threshold for deals. One is taxes, one is eligibility compliance. Your athlete may need to handle both. For the disclosure side, see our parent's guide to NIL.

Do you need to make quarterly estimated payments?

Possibly, yes. Because no one withholds taxes from NIL payments, the IRS expects self-employed people to pay as they go through quarterly estimated payments, due roughly in April, June, September, and January.

If your athlete's NIL income is small, the amounts may fall under the thresholds that trigger penalties, and a CPA can tell you quickly whether that applies. If the income is meaningful, quarterly payments are the way to avoid a painful lump sum plus penalties in April.

The habit that makes this easy: every time a payment arrives, move the tax share somewhere untouchable the same day. More on that below.

If your athlete skips estimated payments when they were required, the result is usually a penalty on top of the tax owed, not a crisis, but an avoidable one. The first year of NIL income is the year to ask a CPA whether quarterly payments apply, because after that first April you will know your athlete's rhythm.

What expenses can your athlete track?

Self-employment income is taxed on net earnings, so legitimate business expenses reduce the tax bill. Depending on the situation, that can include things like:

• Equipment or software bought for creating sponsored content
• Phone and internet costs attributable to the NIL work
• Travel costs for appearances
• Professional fees, like an agent's commission or a CPA's bill

The rules on what qualifies are specific, and this is exactly where a CPA earns their fee. Your job as the family record keeper is simpler: save every receipt and keep a log of what each expense was for. Sorting it out in March is miserable. Logging it in the moment takes ten seconds.

What about state taxes?

Most states with an income tax will want their share too, and the rules get interesting when your athlete lives in one state, plays in another, and earns from deals in a third. Multi-state situations are common for college athletes and are genuinely tricky.

This is another CPA conversation, and a reason to bring one in early rather than after three states send letters. If your athlete is still in high school, keep in mind that state athletic association rules govern eligibility there too, and those sit on top of everything in this article.

How much should you set aside?

A simple rule of thumb: set aside 25 to 30 percent of every NIL payment for taxes, the day it arrives. That range covers self-employment tax plus income tax for most situations, with a cushion.

Make it mechanical. Payment lands, 25 to 30 percent moves to a separate savings account labeled taxes, the rest gets divided between spending and goals. No decision fatigue, no April panic.

This kind of automatic split is the core idea behind GuardNIL: money arrives with a structure already attached, so athletes practice saving and planning on every dollar instead of learning the hard way at tax time. Whatever system you use, the non-negotiable is that the tax share leaves the spending account immediately.

And if your athlete's NIL income is starting to feel like real money, it is worth understanding how it interacts with the rest of their financial picture, including scholarships and aid. We cover that in how NIL income affects scholarships and financial aid, and the teaching side in how to teach your athlete financial literacy.

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