College athletes who have excelled at making money off their name, image and likeness might have been caught off guard when it came time to pay taxes on those profits this year.
“Tax day could be a rude awakening for a lot of college athletes,” Peter Schoenthal, an attorney and founder of Athliance, which provides NIL management software and consulting to athletic departments including the universities of Kansas and Arizona, told Sportico. “You have students who have gone from July 1 to December 31 making thousands of dollars that didn’t put a penny as aside for taxes. They’re going to be put on tax liens.”
Schoenthal mentioned an athlete who was incorrectly advised that any deal under $10,000 didn't generate tax liability. The student ended up doing six deals under $10,000 and will likely owe somewhere around $9,000 in taxes.
“He’s engaging more NIL deals to pay for the ones from the year before,” Schoenthal said.
The threshold for taxable self-employed income is around $400, meaning that even a smaller deal would require athletes report the money.
Sportico reports that it's not just payments that require reporting but also things like free leases on cars, which might come with an NIL deal for a local car dealership.
“My experience over the last 10 months, along with a dozen years on a college campus as an administrator, interacting regularly in a life skills sense with college athletes, is a lot of the preparedness for the ‘real world’ is lacking,” said Andrew Donovan, vice president of collegiate partnerships at Altius Sports Partners, an NIL advisory company that works with schools including Nebraska and Clemson. “It’s not for lack of effort, but there are competing interests on the part of the athlete. They’re trying to excel at their sports, earn a degree and have a social life any 18- to 22-year-old wants to have. Everyone was excited to engage NIL. But the sexy part was not the financial responsibilities and the tax component.”
Self-employed individuals have to pay the full 15.3% self-employment income tax. Full-time employees only pay half that amount, with employers paying the rest (it’s labeled the Social Security tax on W-2s).
This is just the firs year of taxes for college athletes who garnered NIL deals, and experts suspect it will be the messiest but hopefully improve over time.
“Unfortunately, the space didn’t do a good enough job educating student athletes on taxes," Schoenthal said. "When you’re making money and entering the real world, there are consequences. And taxes are one of them.”