For the first time, college athletes are finally able to profit through NIL deals, thus marking a new era of economic opportunity in college sports. And while this “gold rush” presents college athletes with immense opportunity, there is certainly a lack of clarity as to how athletes can be taxed, causing panic for athletes and universities across the country.
The IRS generally classifies college athletes making NIL money as independent contractors and treats their earnings as self-employment income. This status raises several tax issues and requirements that these athletes should be wary of. First, federal tax rules will apply to many athletes across the country, as athletes will be required to file taxes once they make a mere $400 in NIL earnings. Additionally, because these athletes are commonly treated as independent contractors at the federal level, it is clear that they will receive 1099 forms from each source they receive more than $600 from and none of it may be tax withheld.[1] It is also clear that student athletes will be subject to federal income taxes and the federal 15.3% self-employment tax. [2] In addition to being subject to federal taxes on their earnings, the IRS has also laid out that athletes will be required to report in kind benefits such as merchandise or cars at fair market value.[3] While the requirements at the federal level are clearly laid out, the real challenges arise in practice, as it is likely that many of these athletes are uninformed and inexperienced, creating compliance hazards and complications.
The waters get even murkier when looking at state-level taxation, as many states have taken extremely different stances on the issue. For example, earlier this year, Arkansas became the first state to exempt NIL earnings from state income tax.[4] Louisiana attempted to do something similar, but ultimately abandoned the idea.[5] On the other hand, states like California and New York have not laid out any exemptions whatsoever. With severe penalties for noncompliance on the table, these stark differences across the country make filing taxes a confusing task for universities and student-athletes alike.
In light of these tax compliance challenges and obstacles, universities across the country are scrambling to come up with a solution to help keep their student athletes out of tax trouble. One solution, as advanced by Ohio State, has been to send student athletes to tax workshops where they learn how to do their taxes in light of their NIL deals.[6] While this is a good start, perhaps hiring a full-time on site tax specialist would be an even better move for schools who can afford it, as having quick, any-time access to a professional in the field would almost surely help student-athletes navigate the seemingly ever changing landscape of NIL. Additionally, in doing so, a University would likely become a more attractive recruiting destination over schools that leave it in the hands of a young and inexperienced student-athlete, who is likely already up to his or her eyes with both athletic and academic responsibilities.
[1] Name, image and likeness (NIL) income, IRS (September 22, 2025)
[2] NIL and Taxes: What College Athletes Need to Know About Their Earnings, Larson & Company (March 24, 2025)
[3] Claire Allenbach and Matthew J. Razzano, Client Alert: Tax Implications of the House v. NCAA Settlement, Whiteford Law (June 23, 2025)
[4] Weston Blasi, Tax-free NIL payments to college athletes? One state hopes it will give its schools a recruiting edge, MarketWatch (April 30, 2025, 1:16 PM ET)
[5] Piper Hutchinson, Tax breaks for Louisiana college athletes on NIL money punted under budget pressure, Louisiana Illuminator (May 15 ,2025, 5:02 PM)
[6] Sheridan Hendrix, Ohio State student athletes get help from TurboTax navigating NIL deals during tax season, The Columbus Dispatch (March 15, 2025, 11:39 AM ET)
Blake Breidenstein is a third year law student at the University at Buffalo School of Law who has spent much of his law school career studying how the law intertwines with the sports and entertainment industry. Throughout his time in law school, Breidenstein has supported the university's compliance office, working alongside a supervising attorney and staff in ensuring compliance with the ever-changing rules governing collegiate athletics. As a lifelong baseball player, Blake focuses much of his writing on the MLB, although his Buffalo roots occasionally turn his focus towards the Bills and Sabres.
The other question is in how many states does a student owe taxes. For example of an athlete from Arkansas has a shoe deal and they play in the Pinstripe Bowl in Yankee Stadium, will they owe New York State taxes? Would a Razorback basketball player who travels to New York and California owe taxes in those states despite the Arkansas exemption from Arkansas state taxes?
Schools should have CPAs in addition to attorneys to keep the athletes out of tax troubles.