The NIL Gold Rush Is On—But So Is the IRS
College athletes are cashing in. Since the NCAA relaxed its Name, Image, and Likeness (NIL) rules in July 2021, student-athletes have been signing endorsement deals, launching social media brands, and monetizing their fame like never before.
But while the paychecks are new, one thing remains the same: the IRS wants its cut.
At JS Morlu, we help high-net-worth individuals, business owners, and non-profit leaders navigate complex tax landscapes. The NIL era is now a top-of-mind issue for two groups we serve deeply: student-athletes and the donors (or collectives) supporting them.
Let’s break it down—what’s happening with NIL income, why taxes are tripping people up, and how you can stay compliant and strategic in 2025.
NIL Income = Business Income
When athletes like college quarterback phenom Trey (fictional) ink $100K endorsement deals or monetize TikTok millions, they’re not just playing ball anymore—they’re running small businesses.
According to the IRS, NIL earnings are self-employment income, subject to federal and state income tax. And that’s just the beginning. Athletes often forget:
- They need to track every dollar earned—from brand deals to autograph sessions.
- They must pay estimated taxes quarterly to avoid penalties.
- They should track legitimate business expenses (e.g., travel, training, legal fees) that may be deductible.
Nathan Goldman, professor at NC State, nailed it: “Student-athletes are effectively running businesses. Without tax planning, their success can lead to serious tax problems.”
The Most Common NIL Tax Mistakes
Here’s what we’re seeing repeatedly at JS Morlu:
- Failure to set aside taxes
Athletes often spend before saving for the IRS, leading to sticker shock come tax season. - No estimated payments
Anyone earning significant income outside of W-2 wages must pay the IRS quarterly. - Poor expense tracking
Everything from mileage to media kits may be deductible—but only if you keep records. - No business entity
Many athletes are sole proprietors by default. Some may benefit from forming LLCs or S-corps to manage risk and optimize taxes.
The Donor Side: Are NIL Contributions Tax-Deductible?
Short answer? Usually, no.
In 2023, the IRS issued a memo clarifying that NIL-focused collectives do not qualify for 501(c)(3) status if their primary purpose is to benefit individual athletes. Translation: Donations to collectives like “Gator Collective” or “The Foundation” aren’t deductible unless the organization has a bona fide charitable mission.
This was a big wake-up call for universities and high-net-worth donors. Some collectives scrambled to convert to for-profit models or restructure their missions.
If you’re contributing to an NIL collective, don’t assume your donation is deductible. Verify the organization’s tax-exempt status, mission, and IRS filings—or let a tax advisor (like us) do it for you.
IRS Red Flags and NIL Collectives
The IRS’s stance is clear: aiding specific athletes ≠ charitable purpose.
The IRS memo highlighted that “providing benefits to specific individuals—no matter how talented—does not constitute a charitable purpose.” This fundamentally changed how universities and donors approach NIL structures.
Several collectives now operate as for-profit entities, offering benefits to athletes while steering clear of 501(c)(3) scrutiny. Others are hybrid models with clear compliance frameworks.
For donors: Consult with a tax professional before making a five-figure contribution expecting a tax break. If it sounds too good to be true, the IRS may think so too.
State Tax Pitfalls Vary Widely
Don’t forget the states—each has its own playbook.
- California treats NIL as self-employment income, meaning athletes may owe both state income tax and self-employment tax.
- Florida has no state income tax, but federal obligations still apply.
- International students face unique treaty, withholding, and residency challenges that may require specialized tax planning.
Whether an athlete is from New Jersey, studying in Georgia, or earning from companies based in Texas, tax rules can vary. And that can mean multi-state filings, residency audits, and double taxation if not planned correctly.
A Call for Professional Guidance
If you’re a student-athlete (or their guardian), a university administrator, or a donor funding NIL deals, here’s what you need:
✅ Contract Review: Every NIL agreement should be reviewed through a tax lens. Hidden obligations or tax surprises are common.
✅ Recordkeeping Systems: From Venmo receipts to LLC formation documents, you’ll need airtight records.
✅ Quarterly Tax Planning: Estimated taxes are not optional. Missing them triggers fines.
✅ Entity Structuring: Some athletes may benefit from forming LLCs or S-corps, depending on their income and liability risk.
✅ Deduction Education: Know what qualifies (and what doesn’t). Misclassifying expenses can raise audit risk.
✅ Cross-Border Support: Especially for international students, compliance with IRS and visa-related tax laws is complex and high-stakes.
Final Thoughts: NIL in 2025 and Beyond
The NIL landscape is still evolving, and tax law is catching up—fast.
Athletes are becoming entrepreneurs. Donors are becoming quasi-investors. And the IRS is paying attention. Whether you’re trying to save thousands in taxes or just avoid a nasty audit, strategic planning is key.
At JS Morlu, we bring decades of experience navigating federal, state, and international tax issues. If you’re managing NIL income or making NIL contributions, we can help you make smart, compliant decisions that align with your goals.
