The TaxAct filing expert simplifies taxes for college athletes earning ZERO income [PAID CONTENT]
- March 17, 2023
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This year, college basketball and tax seasons will collide like never before, as many student-athletes across the country who have earned revenue from their Name, Image, and Likeness (NIL) will have to file taxes for the first time. TaxAct tax expert Jackson Echols has all the information these players need to know about this season’s filing.
What is NIL income?
As of 2021, NCAA policy changes allowed athletes to earn income for use of their name, likeness, and likeness (NIL). This change is a significant opportunity for collegiate athletes, allowing many to secure brand endorsements in 2022. However, the tax implications can be confusing and present unique challenges for student-athletes, especially if they are new enrollers.
Types of NIL income
NIL income is taxable, meaning it must be declared on a tax return and is subject to individual income tax. In general, NIL income falls into two categories: ‘monetary’ and ‘non-cash’.
Monetary compensation includes payments to an athlete for referrals, appearances, sponsorships, social media partnerships and autograph sessions.
It may be more difficult to identify benefits in kind. “Any ‘giveaways’ received for endorsement deals — like free cars, travel, clothing, sports gear, and even cryptocurrency — are also taxable,” explains Echols.
While this might seem like a confusing process, DIY tax software like TaxAct makes filing as easy as possible, Echols says.
Which forms do you need?
According to the IRS, if college student-athletes earn NIL income, they are independent contractors and their NIL income is self-employment income. This comes with some logistical considerations when it comes to dealing with companies on NIL deals, including which form to submit with.
There are primarily two required tax forms: the 1099-NEC and the 1099-K.
“If the NIL Compensation from a company exceeds $600, that company must send the athlete a Form 1099-NEC,” explains Echols. The 1099-NEC describes the payment
Amount and value of goods received from the athlete.
However, if payment is received through a third-party platform such as PayPal or Venmo, a Form 1099-K may be submitted instead.
Depending on the number of brand deals, the number of forms may vary, but all earnings should be considered. “Information from all forms received must be reported when filing a tax return,” says Echols.
Keeping things organized is key
It is important to keep all tax documents organized as the number of forms to be submitted can vary. Additionally, athletes with a net income of $400 or more must pay self-employment taxes. Self-employment tax is 15.3% of net income. Therefore, it is imperative for college athletes to keep all financial and tax documents and relevant receipts organized and in one safe place to save the time, stress and hassle of filing a tax return. Being able to reference a receipt for expenses related to their work with brands or companies can help reduce their tax liability and the amount of self-employment tax owed. Echols emphasizes that TaxAct makes it easy for collegiate athletes to navigate this new tax landscape and to file cost-effectively with ease and confidence.