Student NIL Tax Breaks Would Put Splashy Recruits Above Fairness

Few principles in tax policy are more foundational than horizontal equity, or the idea that taxpayers with similar incomes should be taxed similarly. But several states are proposing to exempt college athletes’ name, image, and likeness income from state taxes—a regressive and poorly justified move that reveals how far we’ve strayed from horizontal equity in tax design.

Many student-athletes are pulling in six- or seven-figure incomes before they’ve even declared a major. Meanwhile, the students working 20-hour weeks as resident assistants, librarians, or dining hall employees continue to pay tax on every modest paycheck.

Preferential treatment for high-earning student-athletes would amount to a state-sanctioned endorsement of inequity among student filers—driven less by sound policy than by the political capital of college sports. For lawmakers, aligning with a beloved athletic program to enhance its ability to attract top talent isn’t just about economics. Exempting star athletes from taxation can become a means to boost public favor and ride the good feelings of sports fandom to the ballot box.

But states make a value statement when they choose to exempt high-earning student-athletes from taxation while taxing lower-income students. It sends a message that celebrity and athleticism are more deserving of subsidy than work or need.

Supporting university students is incongruous with carving out benefits for the richest ones. Policymakers should instead consider a unified and progressive student income exemption that benefits all students, regardless of whether their earnings come from sponsorships or work-study.

Flau’Jae Johnson #4 of the LSU Lady Tigers is one of the top female student-athlete NIL earners.

Photographer: Steph Chambers/Getty Images

Even in states where low-wage student workers may owe no income tax (due to refunds received or their earnings falling below filing thresholds), the policy distinction from well-paid student-athletes matters. Earning so little income you qualify for a refund reflects a policy effort to reduce poverty; earning so much from sponsorships that the state decides you shouldn’t be taxed at all reflects a political choice to subsidize wealth.

NIL exemptions would shield high-income student-athletes from tax liabilities based on the argument that attracting elite talent is worth sacrificing fairness in tax laws. Such exemptions would flip traditional tax policy by rewarding visibility and earning power with preferred tax treatment that’s unavailable to students who may actually need financial support.

States considering NIL income exemptions may be doing so under the guise of tax reform, but the proposals are rooted in competition. States may be able to lure athletic talent through manipulation of their tax codes, not unlike how they’ve used corporate tax incentives to chase factories and business headquarters—or the film industry. But exempting NIL income has an even weaker connection to job creation or long-term economic development than other tax preferences.

When tax laws become an instrument of state or school pride rather than a way to fund public goods, the taxpaying public loses. And the precedent set in exempting NIL income without providing similar relief for other student earnings would be unsustainable on top of being inequitable.

Today, it may be student-athletes who get the exemptions. Tomorrow, it may be musicians, social media influencers, or reality television personalities—anyone whose star power could be marketed as a state asset or lead to sales of T-shirts or tickets.

A unified, progressive student income exemption that applies to all student earnings—regardless of how they’re acquired—would be far more rational and genuinely helpful. Under such a model, all full-time students could exclude from their taxes a base amount of income, such as an amount tied to what they’re paying in yearly tuition. This exemption would be available regardless of how the student earned it.

If a student is paying $12,000 in tuition, let them shield an equivalent amount of income from tax. This would provide built-in means testing. Students on full scholarships or attending tuition-free institutions likely would get a lower exemption, or none at all, which would benefit those who bear educational costs. That would keep the tax benefit from subsidizing students already receiving generous support for their scholastic achievements or their athletic prowess.

Tying the exemption to tuition would scale the policy across institutions, adjusting naturally between in-state and out-of-state tuition, public and private schools, and traditional and nontraditional colleges. And it wouldn’t impose a flat-dollar exemption that could wind up being regressive in application.

It also would retain the tax benefit for high-earning students. If a student earns $100,000 through NIL but pays $10,000 in tuition, they’d still enjoy a $10,000 exemption. This approach would link tax relief to financial reality, not just notoriety.

The tax code isn’t merely a tool for raising revenue—it reflects what we value and what we want to see more of in society. To support students of all backgrounds, let’s start by treating them fairly.

Andrew Leahey is a tax and technology attorney, principal at Hunter Creek Consulting, and practice professor at Drexel Kline School of Law. Follow him on Mastodon at @andrew@esq.social

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