NIL Income Is Taxable Income
Every dollar a Spartanburg County student-athlete earns through a name, image, and likeness deal is taxable income in the eyes of the IRS. This applies whether the money comes from a social media post for a local restaurant, an autograph signing at a car dealership, or a brand ambassador agreement with a national company. The IRS does not care that the taxpayer is 16 years old. If the money was earned, it must be reported.
NIL income is classified as self-employment income. This means student-athletes are not just responsible for regular income tax but also for self-employment tax, which covers Social Security and Medicare contributions. The current self-employment tax rate is 15.3 percent on net earnings, in addition to whatever federal and South Carolina income tax applies to the athlete’s total income for the year.
Estimated Quarterly Payments
Athletes who expect to owe $1,000 or more in federal taxes for the year are required to make estimated quarterly tax payments. The payment deadlines are April 15, June 15, September 15, and January 15. Missing these deadlines results in penalties and interest charges. Most student-athletes and their parents are not accustomed to making quarterly tax payments, making this one of the most commonly missed obligations for first-year NIL earners.
Should You Form an LLC
Forming a limited liability company is not required for NIL income, but it offers two advantages for athletes earning significant amounts. First, an LLC separates personal assets from business liabilities, providing a layer of legal protection. Second, an LLC can elect S-Corp tax treatment, which may reduce self-employment tax on earnings above a reasonable salary threshold. For most high school athletes earning under $10,000 per year, a sole proprietorship is sufficient. Athletes earning more should consult a CPA.
Deductions Most Athletes Miss
Student-athletes can deduct ordinary and necessary business expenses related to their NIL activities. Common deductions include professional photography costs for social media content, travel expenses for paid appearances, agent or advisor fees, business meals with potential sponsors, and a portion of phone and internet costs used for NIL work. Keeping clean records and receipts from the start is essential. A spreadsheet tracking every NIL-related expense by date, amount, and purpose is the minimum standard.
What is Happening
Q: Do high school athletes pay taxes on NIL income?
A: Yes. All NIL income is taxable as self-employment income, subject to both income tax and self-employment tax of 15.3 percent for Social Security and Medicare.
Q: Do student-athletes need to make quarterly tax payments?
A: Athletes who expect to owe $1,000 or more in federal taxes for the year are required to make estimated quarterly payments on April 15, June 15, September 15, and January 15.
Q: Should a high school athlete form an LLC for NIL income?
A: It depends on the amount earned. Athletes earning under $10,000 per year generally do not need an LLC. Those earning more should consult a tax professional about the benefits of LLC formation and potential S-Corp election.
