June 23, 2025

TerpTax: A Guide to NIL Taxes

What College Athletes Should Know NOW Before Tax Day 2026

Graphic with text that spells out NIL
NIL deals offer student-athletes new income—but also tax obligations. Smith lecturer Samuel Handwerger explains how earnings are taxed, what to watch for, and why planning, record-keeping and resources like TerpTax are key to staying financially and legally safe.

By Samuel Handwerger, CPA, Faculty Advisor for TerpTax, Financial Wellness Center

Picture this: You just landed your first NIL deal—maybe it's a local restaurant paying you $2,000 to post about their new burger, or a clothing brand sending you $500 worth of gear. You're celebrating the win, but then after the end of the calendar year, reality hits: Tax season is coming, and you have no idea what you owe Uncle Sam.

Welcome to the club that nobody talks about in those glossy NIL recruiting presentations. The truth is, every dollar you earn from name, image and likeness is taxable income, and the IRS doesn't care if you're a college freshman who's never filed taxes before.

What is NIL and How Did We Get Here?

NIL stands for “Name, Image and Likeness”—basically, the college athlete’s right to profit from personal brand. Until July 2021, NCAA rules prohibited college athletes from earning any money from their fame or athletic abilities. You could generate millions in revenue for your school, but getting paid for a simple autograph session? That would cost your eligibility.

Everything changed when legal pressure and state laws forced the NCAA's hand. Now, college athletes can sign endorsement deals, appear in commercials, sell merchandise, get paid for social media posts and earn money from camps, clinics and autograph signings. You can partner with local businesses, national brands or even start your own ventures—as long as you follow NCAA guidelines.

The catch? While the NCAA finally opened the door to athlete compensation, they didn't exactly provide a roadmap for handling the tax implications that come with suddenly becoming a business owner…the business of selling your name, image, and likeness.

Bottom Line: It All Counts as Income

Here's the deal that catches most athletes off guard: Everything you receive through NIL deals gets taxed like regular income. That $1,500 cash payment for a social media post? Taxable. Those free shoes worth $300? Also, taxable. That all-expenses-paid trip to a sponsor event? You guessed it—taxable at market value. [Get paid with crypto— taxable.]

The IRS treats NIL income as self-employment income, which means paying tax for that small business of selling “you.” Companies will send you a 1099-NEC form if they pay you more than $600 in a year, but even if you don't get that form, you still need to report every penny.

For U.S. Athletes: The Self-Employment Reality

Most American student-athletes don't realize they’re now considered independent contractors. Unlike your campus job where taxes get automatically taken out, NIL payments come with no withholding. That means you're responsible for both regular income taxes and self-employment taxes (covering Social Security and Medicare).

Here's what gets expensive fast: That self-employment tax is a flat rate of effectively 14.13% on the “gross income” earned. Whoa, wait a minute…read carefully now…that was 14% on the “gross.” Think of it as a sales tax on yourself at that rate, and you pay it.

Hold on, we’re not done. Then comes the federal income tax at rates based on “net” income ranging from 10% to 37%, the higher percentage for net income amounts over $626,350. More about the “net” concept in a minute.

Now add in the state income tax rates, which will depend on where you are a resident, and where the income was earned. For the states, I would need a CPA to help me figure it all out. Wait, I am a CPA and I teach State Income Tax at UMD! Which is exactly why I know it is complicated—each state’s rule may differ; and certainly, their tax rates will differ.

Since our tax systems subscribe to the “pay the tax-as-you-earn” principle, you probably will need to make quarterly estimated tax payments on your own to avoid penalties. This applies to both the federal and state. Miss these deadlines and you could owe interest and fees that eat into your earnings. Certain safe harbors may allow you to bypass these estimated payments the first year, but you will owe the full tax by April 15 after the year ends. So… Smart move: Set aside 25-30% of every NIL payment for taxes. Open a separate savings account and treat it like it's already gone. Trust me, April 15 will be much less stressful.

Now the good news (Spoiler alert: it’s not a cure-all). For computing the income tax, taxed at that “net” amount: To get to the net, deduct legitimate business expenses—things like travel costs for sponsored events, agent fees, marketing materials and even part of your phone bill if you use it for NIL work. Keep every receipt and document everything. A simple spreadsheet tracking your income and expenses will save you headaches later.

Finally, while you might be at the beginning of an exciting career in your chosen field, start thinking about retirement. This is not to cut your career short, but to let you know that in America, wherever there is “earned income” (like NIL payments) there is a designated retirement account not far away. These have important tax ramifications—so don’t finish up your tax return without one.

For International Athletes: Navigate Carefully

For international student athletes on an F-1 visa, NIL money creates a much more complicated situation. Most F-1 visa holders are considered “nonresident aliens” for tax purposes, which means different rules and often tax rates. The biggest challenge? Many NIL activities might violate their visa status. F-1 visas severely limit off-campus work, and most NIL deals don't qualify for the few exceptions allowed. Accepting the wrong type of NIL payment could jeopardize your student status and even lead to removal from the country.

Critical step: Before signing any NIL deal, check with your school's international student office. Some activities might be permissible if done outside the United States or under specific visa conditions, but you need professional guidance.

When earning NIL income legally, give the payor a Form W-8BEN to avoid a 30% withholding tax on the gross. You'll typically report the income on IRS Form 1040-NR and pay a tax but most likely at a lower rate than the 30%. Taxable computation will be similar to that of residents in that you will be taxable on the “net.” And perhaps the best rule for you: You won't pay self-employment taxes within your first five calendar years in the United States as an F-1 visa student.

Some countries have tax treaties with the United States that could reduce your tax burden, but the specifics vary dramatically by country. This isn't DIY territory—you need someone who understands both U.S. tax law and international student regulations (See the commercial at the end).

Building Smart Money Habits Now

This might feel overwhelming, but developing good financial habits early pays off long after your playing days. Many athletes set up LLCs to separate personal and business finances, which can offer liability protection and tax advantages. Start tracking everything in a simple system—dates, amounts, what the payment was for and any expenses related to earning that income. Whether it's a spreadsheet or basic accounting software, consistent record-keeping makes tax time manageable.

The Real Talk

NIL opportunities are incredible but come with real responsibilities. The IRS doesn't offer a college athlete exemption, and they don’t care if ‘nobody explained the tax implications’ when you signed that first deal. Plan, keep good records and don't let tax surprises derail your financial future. With smart preparation, one can maximize NIL earnings while staying compliant with both tax laws and NCAA regulations. After all, the goal isn't just to earn money during college, it's to build financial literacy that serves you for life.

Where to Get Help on Campus

TerpTax and UMD’s newly launched Financial Wellness Center work together to provide such advice that you might need. And it’s all for free.

Samuel Handwerger is a full-time lecturer in the accounting and information assurance department at the University of Maryland’s Robert H. Smith School of Business. He serves as faculty advisor to UMD’s Financial Wellness Center and to TerpTax, a nonprofit organization affiliated with UMD that provides free tax preparation services for low to mid-income individuals in the University of Maryland, College Park community, according to VITA/TCE guidelines.

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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.