NIL Money And Taxes: What College Athletes Owe The IRS, The FAFSA, And Their Agent

College athletes are getting paid, and many of them don’t know what to do with it to maximize their long term wealth. The money arrives with no tax withheld, no benefits attached, no HR department explaining anything, and a set of rules that punish anyone who assumes a paycheck is a paycheck.

The window is short, too. NCAA data puts the odds of a draft-eligible football player getting drafted at 1.4%, and men’s basketball at 1.0%, while the NCAA’s own GOALS research found roughly 74% of FBS football players believe they’ll go pro. That gap is where the financial damage happens.

The money comes from selling their Name, Image, and Likeness, or NIL. And it’s big business in college sports today.

Here’s how the money works, what it costs, and what to do with what’s left.

Where NIL Money Actually Comes From

There are two main ways that college athletes earn money from NIL.

Direct payments from the school. After a federal judge approved the House v. NCAA settlement in June 2025, schools could pay athletes directly starting July 1, 2025. Each participating school has a cap in 2026-27 of $21.3 million, fully spendable.

About 319 Division I schools opted in. At most Power 4 programs football takes up to 75% of that pool, with men’s and women’s basketball splitting most of the rest. Olympic-sport athletes at those same schools frequently get no cash at all — just added athletic scholarships.

That makes sense once you realize that 94% of college sports programs lose money.

Third-party deals. Everything not coming from the athletic department:

• Collectives: booster-funded groups that historically drove most NIL dollars
• Brand deals: national brands, regional companies, local restaurants and car dealers
• Social media: sponsored posts, overwhelmingly on Instagram but also TikTok
• Appearances, autographs, and sports camps: one-off checks in the $300 to $3,000 range to show up
• Group licensing: EA Sports pays $1,500 per player for its college football game

Both pipelines are real money, but the spread of who gets paid is real. Opendorse data on Power 4 football players (the single best-compensated group in college sports) showed 66.5% earning under $10,000 a year. Only 0.3% cleared $1 million. The average third-party deal runs about $6,200, and 84% of deals are one-time transactions, not recurring contracts.

That matters for financial planning. For most athletes, NIL is not an income stream. It’s a handful of scattered payments, basically a nice side hustle income rather than a salary.

How Athletes Get Paid And What Forms Matter

College athletes are generally not employees. Schools deliberately structured revenue-share payments as licensing compensation rather than wages, which means no W-2, no income tax withholding, and no FICA taken out.

What athletes get instead is paper:

• Form 1099-NEC for active services — appearances, promotions, social posts, autograph sessions. This is Schedule C income and it carries self-employment tax.
• Form 1099-MISC, Box 2 (royalties) for the passive licensing of name, image, and likeness. Schools often split revenue-share payments between the two. Royalty income lands on Schedule E and is not subject to self-employment tax.
• Form 1099-K if payment ran through an app or platform, though the 2026 federal threshold is high: more than $20,000 and more than 200 transactions.

Two things to note. First, the One Big Beautiful Bill Act (OBBBA) raised the 1099-NEC reporting threshold from $600 to $2,000 starting in 2026, so an athlete with four $1,500 deals may receive zero tax forms on $6,000 of fully taxable income. The IRS is unambiguous: all NIL income is taxable whether or not a form shows up. The royalty threshold on 1099-MISC is still $10, so athletes often get forms for tiny amounts and none for larger ones.

Second, the royalty split is aggressive and untested. The IRS has issued no guidance blessing it, and courts have historically recharacterized “royalties” as service income when the license can’t be separated from the personal services behind it. It’s important here because generally an athlete has to actually play to have marketable NIL. Anyone leaning on a heavy royalty allocation to dodge self-employment tax is taking a position the IRS may not agree with in the end. Royalty income is also unearned income, which can drag a dependent athlete into the kiddie tax at their parents’ marginal rate.

Non-cash compensation counts too. Free vehicles, athletic gear, housing, flights, meals, haircuts, legal services are all taxable at fair market value in the year received. If you get $10,000 in gear from a sponsor, it’s taxable, and you may not easily have the actually cash to pay the tax bill.

One rule that gets confused with the tax forms: every third-party deal of $600 or more must be submitted to NIL Go, the Deloitte-run clearinghouse under the College Sports Commission. That’s an eligibility requirement, not a tax one.

Through July 1, 2026 it had cleared 34,195 deals worth $355 million and denied 1,812 worth about $90 million with 95% approval by count, but only 80% by dollar value.

The Tax Bill Nobody Warns Them About

This is where most athletes get hurt.

Self-employment tax is the main cost, not income tax. The rate is 15.3%: 12.4% for Social Security (capped at $184,500 of earnings in 2026) and 2.9% for Medicare, applied to 92.35% of net profit. Filing is triggered at just $400 of net self-employment earnings.

Self-employment tax is calculated on business profit before any standard or itemized deduction. Run the numbers on an athlete with $20,000 of net NIL profit and no other income:

• Self-employment tax: $20,000 × 92.35% × 15.3% = $2,826
• Taxable income after the half-SE-tax deduction and the $16,100 standard deduction: $2,487
• Income tax after the QBI deduction: roughly $199
• Total: about $3,025 — and more than 90% of it is self-employment tax

An athlete who reasons “I made less than the standard deduction, so I owe nothing” is wrong by about three thousand dollars. Scale that to $100,000 of net profit and the combined federal bill runs a little over $22,000 at 2026 tax brackets.

Quarterly estimated payments may be required since nobody is withholding from this compensation. If you expect to owe $1,000 or more, payments are due April 15, June 15, September 15, and January 15 of the following year. If you miss them, the IRS charges interest: 7% for the first and third quarters of 2026, compounded daily.

Two ways to stay safe:

• Safe harbor. Pay the smaller of 90% of this year’s tax or 100% of last year’s (110% if last year’s AGI was above $150,000).
• The first-year exception. If you had zero tax liability last year, were a U.S. citizen or resident the whole year, and that year covered 12 months, you owe no estimated payments this year at all. A freshman signing a first deal often gets a free pass on year one, but not year two. The residency condition matters for international athletes.

State tax is a second layer. Your home state can tax everything you earn, and states where you perform work (an out-of-state photo shoot or signing) can tax that piece too. California tops out at 13.3%, New York at 10.9%, while nine states don’t tax wage income. Attending school somewhere doesn’t automatically make you a resident, but a year-round off-campus lease plus 183-plus days in state can trigger residency. Basically, it’s complicated…

Arkansas became the first state to carve NIL out of its income tax under Act 839 in 2025, though the exemption covers only money paid by the school so third-party deals are still taxed. Several other states have similar bills pending. But these rules would affect state tax only. Federal and self-employment tax are untouched.

One more surprise. Athletes on full scholarships already have taxable income they don’t know about. Tuition, required fees, and required books are tax-free under Section 117. Room and board are not and can add $12,000 to $18,000 of taxable income to the athlete, stacked on top of NIL earnings.

Should Athletes Form a Business Entity?

The short answer is no. Most college athletes shouldn’t bother, and the ones who do create an entitu usually misunderstand what they’re doing.

Sole proprietor (Schedule C) is the default. No formation, no fee, no separate return. This is correct for the large majority of college athletes, and it’s where side business deductions live.

A single-member LLC is a disregarded entity for federal tax purposes. It changes nothing about what you owe. What it does provide is a contracting entity with its own EIN and bank account, which keeps the athlete’s Social Security number off brand paperwork, and a clean home for trademarks and IP that survives a transfer.

What an LLC does not do is the part athletes get sold wrong. It creates no deductions and reduces no self-employment tax. And it does not shield you from your own conduct like a defamatory post, a car accident driving to a shoot, an FTC disclosure violation, a contract you breached. Nearly all of an athlete’s liability exposure is personal, and an LLC covers almost none of it. Protection also disappears the moment you commingle funds, which is exactly what a 19-year-old with one debit card tends to do. A media liability insurance policy may be a better choice depending on the scope of the NIL deals.

An S-corp election is an actual tax lever, but there are strict rules. You must pay yourself a reasonable W-2 salary subject to payroll tax, take the remainder as distributions exempt from self-employment tax. Practitioners generally put the breakeven of setting this up as requiring around $80,000 to $100,000 of net profit, but for NIL athletes it’s higher, and here’s why.

The 20% qualified business income deduction under Section 199A was made permanent by the OBBBA. Athletics is explicitly a “specified service trade or business,” and so is income from endorsing products or licensing your name and likeness. That sounds disqualifying, but it isn’t for most athletes: SSTB status is irrelevant below the income threshold. For 2026, a single filer with taxable income at or under $201,750 gets the full 20% deduction regardless. Between $201,750 and $276,750 it phases out across that range. Above $276,750 an athlete gets no QBI deduction.

The catch: W-2 wages you pay yourself through an S-corp are not qualified business income. Shifting $60,000 to salary erases $12,000 of QBI deduction, clawing back much of the self-employment tax savings. Run the math for the actual athlete rather than assuming the generic threshold applies.

Costs add up with an S-Corp. Payroll costs runs $500 to $1,500 a year plus $1,000 to $2,500 for the 1120-S return, and California taxes S-corps at the greater of $800 or 1.5% of net income. If you owe taxes in multiple states, expect your tax prep costs to increase as well.

Two other warnings: a family member “managing” the LLC can accidentally be acting as an unlicensed agent under state athlete-agent statutes, and international athletes on F-1 visas face real immigration problems operating a business.

What NIL Actually Costs to Earn

Athletes usually only look at gross deal value. What matters is net. And yes, even earning NIL money has expenses.

Agent and manager commissions vary by deal type, and this is where athletes usually see the biggest expense. Industry guidance generally puts the ranges at:

• Collective deals and revenue sharing: 0% to 3% — the agent didn’t generate this money
• Brand-initiated deals that come to you: 10% to 15%
• Deals the agent sourced and negotiated: 15% to 20%

Anything above 20% is widely considered predatory, and some practitioners peg collective and rev-share work closer to 5%. Paying 15% on a revenue-share check is paying a finder’s fee on money that arrived on its own. NFL agents, for comparison, are capped at 3% of salary.

Other real costs: marketing, contract review, accounting and tax prep, travel to appearances, content production, equipment. The good news for Schedule C athletes is that all of those are deductible against NIL income, along with the business-use share of phone and internet.

Two things to be aware of:

1. Training and coaching costs are contested and the IRS generally treats athletic training for a student-athlete as personal or educational, not an ordinary and necessary cost of the NIL business, and no published authority supports the athlete-side argument.
2. If any of this income gets reported on a W-2 (some collectives structure it that way, and athletes could be reclassified as employees down the road) none of those expenses are deductible at all, because the OBBBA permanently repealed miscellaneous itemized deductions. An athlete paying a 15% commission on W-2 income is taxed on the gross and eats the fee with after-tax dollars.

Saving and Investing NIL Money

What most young adults miss about saving and investing is that order of operations matters more than any individual investment selection.

1. Open a separate savings account and move 30% to 40% off the top the day money lands. Every deal, every time. This is the tax account, and it is not spending money. Athletes in high-tax states or above the Social Security wage base should be closer to 40%. Nothing else on this list matters if this step doesn’t happen.

2. Build three to six months of expenses in a high-yield savings account. NIL income is lumpy and can stop without warning — a coaching change, a transfer, a torn ACL, a collective that runs out of donors. Creating an emergency fund matters more here than for a salaried worker, not less.

3. Fund a Roth IRA. The single best move available to a college athlete, and sadly underused. Net self-employment income counts as IRA compensation, so Schedule C NIL income qualifies. The 2026 Roth IRA contribution limit is $7,500.

Contributions come out tax-free at any time for any reason, so it doubles as a backstop. A 19-year-old is in the lowest tax bracket they will ever occupy, which is exactly when Roth beats traditional. And retirement balances are excluded from FAFSA assets entirely, while Roth contributions aren’t added back as untaxed income. Money in a Roth is invisible to the aid formula. Money in savings is not. Opening one takes about fifteen minutes at any of the major IRA providers.

4. For high earners, open a solo 401(k) or SEP-IRA. Self-employed athletes can shelter far more than $7,500. A solo 401(k) allows a $24,500 employee deferral for 2026 plus an employer contribution, up to a combined $72,000. One caveat: deductible self-employed retirement contributions get added back as untaxed income on the FAFSA, so this cuts the tax bill but not the aid hit. Only the Roth does both.

5. Then invest the rest simply. Low-cost index funds in a taxable brokerage account. No crypto concentration, no stock picking, no startup, no “opportunity” from someone who found you because you got paid.

What to avoid: buying a car in year one, cosigning anything for anyone, custodial UTMA/UGMA accounts before anything else (student assets on the FAFSA at 20%, no protection), and any lifestyle inflation.

How NIL Money Impacts Financial Aid

This is the part that catches families completely off guard, mostly because of the timing.

The FAFSA runs on a two-year lag. The 2027-28 FAFSA uses 2025 tax return data. NIL money earned in calendar year 2026 does not show up on the 2027-28 FAFSA at all — it first appears on the 2028-29 FAFSA, filed around October 2027, affecting aid for the school year starting in fall 2028. Worth checking FAFSA deadlines against your own timeline.

Two practical consequences. A college senior earning big NIL money in 2026 may never see a FAFSA hit, because they graduate before the income shows up on FAFSA. A freshman earning big NIL money in 2026 gets hit as a junior, sometimes after the money has stopped.

Student income is assessed hard. All aid formulas expect students to use their own money to pay for college before receiving any “free” aid. After a small income protection allowance ($12,220 for a dependent student in 2027-28) and allowances for income tax and payroll tax, half of what’s left gets added to the Student Aid Index. Roughly $50,000 of NIL income adds about $15,000 to the SAI, which cuts need-based aid eligibility by roughly the same amount against cost of attendance.

Saved money gets assessed again, every year. Student assets are counted at 20% with no protection allowance whatsoever. Leave $30,000 sitting in savings and it adds $6,000 to the SAI annually, on top of the income hit.

Pell Grant Limits. Starting in 2026-27, the OBBBA bars Pell Grants for any student whose non-federal grant and scholarship aid equals or exceeds their cost of attendance. Full cost-of-attendance athletic scholarships are non-federal institutional grant aid. Athletes on true full rides lose Pell eligibility outright.

Private colleges treat things differently. The CSS Profile asks for projected earnings for the coming academic year, not just prior-prior year data, so at a CSS Profile school NIL income affects institutional aid the same year it’s earned. Those schools also assess student assets at roughly 25% and count home equity.

NIL itself is not treated as financial aid. The Department of Education confirmed in 2021 that NIL compensation is non-need-based income, not “other financial assistance,” so it doesn’t cut your package directly — it hurts through the income side of the formula two years later. Athletic scholarships do reduce remaining need immediately.

Planning For A Short Earning Window

Two-thirds of Power 4 football players earn under $10,000 a year. The overwhelming majority of college athletes will never take a professional paycheck. Under the age-based eligibility model the Division I Cabinet adopted in June 2026, athletes get up to five years, but most get less than that because of transfers, injuries, and roster cuts.

So the planning problem isn’t “how do I invest my millions.” For nearly everyone it’s “how do I keep a two-to-four-year run of irregular income from turning into a tax headache, a lost scholarship, and nothing to show for it.”

Here’s some things to plan for:

Assume the money stops. Structure everything around a fixed window, not a career. Don’t sign a lease, buy a car, or take on a payment you couldn’t cover on a normal salary.

Pay the tax first, every single time. A separate account and an automatic transfer is worth more than any investment decision on this list.

Get your education. A scholarship covering tuition at a school that would otherwise cost $200,000 is often the best financial asset in the deal. Finish the degree, take the internship, build the network and if there’s money left over, invest it.

Hire a CPA before you need one. Not in April. Find someone who has handled multi-state self-employment income before the first big deal closes. The fee is tax write-off and cheaper than tax problems later.

Read your agent agreement. Check the commission rate against the deal type, the term, the termination clause, and whether the agent is registered under your state’s athlete-agent statute. For example, California requires a $100,000 surety bond and Florida requires licensure. An unlicensed agent is a problem you inherit.

Keep records like a business. Receipts, mileage logs, contracts, every 1099. Schools and collectives often run payments through several different processors, so a single year can produce a stack of forms arriving at different times from different places. Nobody is going to assemble that for you.

The athletes who come out ahead aren’t usually the ones who earned the most. They’re the ones who treated a short, lumpy, fully self-employed income stream like the small business it legally is and paid the tax, kept the overhead low, funded a Roth, and finished the degree.

Robert Farrington

Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.

Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.

He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.