NIL Earnings Create Serious Tax Risks for College Athletes Today

Only a small percentage of college athletes earning name, image, and likeness, or NIL, money will go on to play professionally, so the money earned from NIL may be the most money they will earn in their lifetimes. It’s hard to imagine graduating from college and starting out in life with the IRS hounding you for money or having a tax lien filed against you that will follow you around like a black cloud, but that’s the reality facing many of these young men and women.

Brief History of NIL

Following successful lawsuits by student athletes starting in 2015 and a unanimous Supreme Court ruling in NCAA v. Alston in 2021, the NCAA allowed student athletes to receive compensation in exchange for use of their NIL.

Then on June 6, 2025, came the settlement of House v NCAA, named after former Arizona State swimmer Grant House, who, along with others, sued the NCAA over compensation restrictions. There were many provisions of the House Settlement including scholarship and roster limits, the creation of an independent commission to approve NIL contracts, and payment of almost $3 billion in damages to current and former athletes. Tax-wise, the most important provision allows for the schools to directly pay the athletes for their NIL as a portion of the school’s sports-generated revenue. Known now as “Rev-Share,” it allows for schools to pay up to 22% of their revenue directly to athletes across all sports. It’s estimated that this amounts to approximately $21 million per school this year, with annual increases built-in going forward.

One of the misconceptions of the public is that college athletes are now employees of the schools they’re attending. Not true. They are self-employed independent contractors with no taxes withheld from their earnings, which means they need to pay their taxes on their own, preferably in the form of quarterly estimated payments. That’s quite the ask for an 18-year-old fresh out of high school.

When meeting with college athletes I draw from my time in enforcement at the IRS and relay how I saw tax problems destroy people’s lives, breaking up partnerships, businesses, lifelong friendships, and even marriages. I tell athletes that most tax problems are caused by poor planning and, more importantly, refusing to address an issue when it first arises.

Support Systems and Agents

Some athletes earn only a few thousand dollars while others in high profile sports earn over seven figures. But the most interesting thing to me was the diversity of the backgrounds and support systems, or lack thereof, of the athletes. Some have great support systems whether it be their parents, grandparents, extended family, friends, high school coaches/mentors, financial advisors, and agents. Others have little or no support, or their “support system” is not providing what they really need.

Some agents are charging high fees to supposedly help athletes land a Rev-Share contract with their school that could possibly be provided without an agent. I’ve met athletes with essentially identical Rev-Share contracts, except that one may have paid an agent 10-20% in fees while the other didn’t even have an agent. If the contract is for $200,000, that could be $20,000-$40,000 paid to an agent off-the-top.

This is not to say there isn’t a need for agents in the NIL world, especially when it comes to landing brand deals, also known as endorsements. I’ve also seen some well-known sports agents admirably charge nothing or much lower fees to college athletes.

Some athletes already have a great grasp of the tax implications of their NIL income and are proactive in putting money aside for taxes after each payment (usually monthly) is received. Some are even making quarterly estimated tax payments. Some are investing in retirement accounts, commodities like gold and silver, real estate, and other business ventures. Conversely, I saw an athlete who had close to $200,000 sitting in a non-interest bearing checking account, and another who claimed a close family member stole $65,000 from his NIL earnings.

I advise athletes that they don’t have to wait for the quarterly due dates to make an estimated tax payment and that they can do it preferably after each paycheck is received. The advice I drive home is “Put money aside for your taxes,” and invariably the next question is “How much should I put aside for taxes?” I quote what I call the third rule—spend 1/3, save 1/3 and put 1/3 aside for taxes. If athletes have the discipline to follow this simple mantra, they won’t get into tax trouble.

Transfer Portal and Taxes

Over 6,700 Division I football players entered the transfer portal this year. Although there was no specific deadline, players wanting to attend the spring semester needed to sign with their new school in early January to meet university enrollment deadlines. And it wasn’t just committing to attend and receive a scholarship: They were also negotiating contracts for Rev Share, NIL, and possible endorsement deals.

Many of these transfers reaped the benefit of a successful season and signed contracts for significantly more than they did in 2025, but there are some tax consequences that come with this windfall. Not the least of these is the change in federal tax bracket from 22% to 37% and the elimination of the qualified business income, or QBI, deduction due to the high income level. When adding this to self-employment and applicable state taxes, a million dollars quickly gets reduced to approximately $500,000-$600,000. Still a lot of money, but a big surprise to a college athlete navigating the uncharted waters of NIL.

Athletes who received substantial funds in November and December of 2025 were forced to pay back those funds to the schools in January 2026 when they transferred. Tax-wise this creates a problem because they must report and pay tax on the money received as “earned income” for 2025. This becomes a “claim of right” credit for 2026 under IRC §1341 that allows taxpayers to recover tax paid on income reported in a prior year that was later repaid. This solution results in the athlete not paying more in taxes than is ultimately owed, but it stretches across two years and is still a tough pill to swallow for young college athletes.

A related tax issue arises when the athletes incur additional expenses associated with transferring and terminating the contract. Athletes sometimes break leases on apartments and must pay landlords thousands of dollars in early termination fees. The question arises whether these damages constitute a deductible business expense.

Taxes are Complicated

Any college athlete who receives a Form 1099 for NIL income immediately steps into a far more complex tax situation than a traditional wage earner. Since the athletes are self-employed, they must pay Social Security and Medicare tax (15.3% total) on net earnings of $400 or more. These athletes are generally considered independent contractors for tax purposes for their labor and must file a Schedule C, Profit or Loss from Business, with their Form 1040. And they must be able to document and track all expenses incurred in generating NIL income.

Whether they earn $3 million or $3,000, the athlete’s federal return can expand to 10–15 pages, requiring calculations for business expenses, self-employment tax, scholarship income considerations, QBI deductions, and quarterly estimated payments. Compare that to a young W-2 wage earner with no itemized deductions or other income, whose return might be only two pages.

They may be required to file a Schedule E, Supplemental Income and Loss, with their return to report income from royalties and certain other types of income and related expenses.

Another problem, especially for transfer students, is simply finding all of their income documents like Form 1099s for Rev-Share, NIL from collectives and brand deals, and 1098-Ts for their scholarships. Many athletes, and even school administrators, are under the false assumption that scholarships and stipends are non-taxable. That’s only partially true. The portion of the scholarship used for tuition and related expenses is not taxable, but any portion used for additional expenses, such as room and board, is taxable.

Some schools that started making Rev-Share payments in July 2025 have used multiple payment providers. Some of the athletes aren’t sure who paid them during what time periods and how to locate the documents from their prior school. One athlete eventually located 13 income documents for 2025. Some of these documents were sent via regular mail to his parents’ home and an old address on Campus. Some were sent via email, and others were eventually found on the university student portal and a digital wallet. Of course, these forms are also sent to the IRS and if any are not included as income, the athlete will eventually receive a notice asking why and proposing an additional tax assessment.

Another unexpected scenario is schools deducting fines for poor performance or conduct such as tardiness from Rev-Share payments. Prior to NIL, disciplinary actions were carried out by sitting on the bench or running extra laps at practice. Now the schools can hit the athletes in their wallets by withholding fines from their payments. With no collective bargaining for college athletes, they have no appeal rights or other recourse to have the fines reduced or eliminated, which is available to professional athletes through union representation.

Proper Planning and Execution

Some athletes have told me they weren’t advised upfront about the tax consequences of their NIL income and that I’m the first person that stressed the fundamentals of tax planning and compliance. Many athletes are now facing federal and state tax liabilities for 2025 with insufficient funds to pay what they owe and are faced with negotiating payment agreements.

I like to tell athletes that if they’re down by 10 or 15 points at half-time but have a good game plan and execute in the second half, they can come back and win. But if they fall behind with the IRS, odds are they’re not coming back, because with accrued penalties and interest (compounded daily), the IRS is the greatest front runner of all time.

As we like to say it’s all about NIL – Name, Image, and LIFE!

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Thad Madden, Enrolled Agent, is tax consultant, founder of Thad Madden Tax Consulting, and in-house tax expert for Scout, a financial technology company focusing on athletes, and is a certified service provider with Athletes.org. He retired from the IRS after a 38-year career as a revenue officer, analyst, and program manager. At the IRS, he led an agency-wide task force that examined compliance rates for athletes being paid under the banner of NIL.

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