Every year, millions count down the April days until their tax return is due. But there’s another sizeable group paying close attention to another date this month.
It’s the day (well, actually the evening) when the college basketball champion is crowned. Two of the Final Four teams — Auburn, Duke, Florida, and Houston — will meet in that game on Monday, April 7.
All involved obviously are focused on achieving the dream of becoming the champs.
But excelling at a college sport these days literally pays off in other ways. Several NCAA players in the March Madness tournament had name-image-likeness, or NIL, deals, some worth more than $1 million.
NIL earnings are taxable income: This income stream is the result of the NCAA policy change in 2021 that lets student athletes benefit financially from their popularity without jeopardizing their eligibility.
The earnings options are wide-ranging. They include guest appearances at clubs and schools, autograph signings, exhibitions, sponsorships, endorsements, content creation/influencer activities, non-fungible tokens, gifts, and giveaways, such as gift cards.
If you live in a college town like I do, you’ll also see more of these young people in television ads for local companies.
Most of these players have advisers. I hope that includes tax specialists, since NIL income is taxable. This includes payments made in cash, free products, or services.
While some student athletes have started their own businesses to maximize NIL opportunities, many view the earnings as a sideline to their studies and sports involvement. But in either case, they’ll likely owe self-employment tax on their net NIL earnings.
So, these student athletes with NIL income should be filing on Tax Day.
Filing help for NIL earners: Again, the star athletes will have help meeting their tax obligations. But some college players in less high-profile sports may be operating on their own.
In those cases, they should check out the Taxpayer Advocate Service’s special NIL Get Help page. It has resources for student athletes in such areas as federal tax reporting, withholding, estimated tax payment, and return filing requirements associated with NIL income.
That estimated tax area is important since the first 2025 payment, for earnings in January through March, including March Madness related payments, also is due this April 15.
Don’t forget state taxes: The NIL earners also need to pay attention to potential state taxes. If they live in a state with an income tax, that jurisdiction will won’t its portion, too.
Some sports fans have complained that this could put colleges in no-income-tax states at a competitive advantage when it comes to recruiting.
Since successful college sports teams not only boost the schools, but the overall economies of the towns and states where they are located, some lawmakers are looking to level the taxable NIL playing field.
So far, legislators in at least four states — Alabama, Georgia, Illinois, and Louisiana — have explored exempting at least a portion of student NIL income from state taxation.
No proposal has made it into law yet. In addition to the financial concerns, there also is pushback from students who aren’t part of the universities’ major sports programs.
But keep an eye on the potential tax breaks for star college athletes. Major college athletic programs rake in millions for the schools and tax jurisdictions where they are located. Boosters and bean counters alike don’t want anything to jeopardize that money stream.
And if you’re a student who made money last year, either via NIL opportunities or more traditional college earning situations, don’t miss Tax Day.
You also might find these items of interest:
- 7 tips for first-time tax return filers
- Some winning Olympians get a tax break
- Student athletes need an NIL tax game plan
- Fall football season, college NIL earnings put jock tax in sports spotlight
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