The Changing Tax Picture for Student-Athletes and Donors in the NIL Era

In the wake of NCAA policy changes and state-level legislation, student-athletes are cashing in on their name, image, and likeness (NIL) like never before. But with this wave of monetization comes a new challenge: navigating the complex tax implications of NIL income—for students and for the alumni, donors, and collectives supporting them.

With every passing tax season, it’s becoming increasingly clear that both athletes and donors need professional guidance to avoid costly missteps.

NIL: New Opportunities, New Liabilities

Since the NCAA’s July 2021 changes to allow athletes to earn money from endorsements, social media promotions, autographs, and other NIL-related ventures, many students have taken full advantage. According to On3 NIL valuations, some top-tier athletes in “power conferences” now earn hundreds of thousands—if not millions—of dollars annually.

However, the Internal Revenue Service treats that income like any other: it’s taxable.

As Poole College of Management professor Nathan Goldman notes in his article, NIL income can easily lead to significant tax burdens, particularly for students who don’t realize they may need to pay quarterly estimated taxes. "It’s critical that student-athletes understand they are effectively running small businesses now," Goldman writes. “They need to track income, save for taxes, and understand what qualifies as a deductible expense.”

Common Tax Oversights by Athletes

Many athletes fail to:

• Set aside money for federal and state taxes
  
  
• Track expenses (e.g., travel, gear, or training that could be deductible)
  
  
• File quarterly estimates, especially for larger NIL contracts

This is where a tax professional can be invaluable, guiding athletes through compliance and helping them avoid IRS penalties or audits.

The Donor Dilemma: Are NIL Contributions Deductible?

It’s not just athletes navigating the murky tax waters. The rise of NIL-focused collectives—donor-backed entities that pool funds to compensate athletes—has also created confusion on the donor side.

Early on, some collectives were established as 501(c)(3) nonprofit organizations, which led donors to believe their contributions were tax-deductible. However, in June 2023, the IRS issued guidance in a memorandum that raised red flags: organizations that primarily benefit private individuals (such as student-athletes) do not qualify as charitable under IRS rules.

This guidance had major implications for high-profile NIL collectives like The Foundation (supporting Ohio State University athletes) and Gator Collective (formerly tied to University of Florida athletes), both of which initially operated under nonprofit models. Following the IRS memo, several collectives, such as Spyre Sports Group for the University of Tennessee and Texas One Fund for University of Texas athletes, pivoted to for-profit or hybrid structures to stay compliant and continue operations.

These examples underscore the importance of verifying the tax status of any NIL-focused organization before assuming a donation is deductible. Tax professionals should advise donors to do their due diligence, especially when contributing large sums to collectives affiliated with powerhouse athletic programs like Alabama, USC, or LSU, where NIL activity is often both prominent and heavily scrutinized.

IRS Memo Fallout

This means contributions to most NIL collectives do not qualify for tax deductions unless the organization clearly serves a broad charitable purpose unrelated to athlete compensation. The IRS emphatically stated that “providing benefits to specific individuals—no matter how talented—does not constitute a charitable purpose.”

In response, many collectives are now shifting to for-profit structures or reclassifying their missions. Tax professionals serving donors or universities should advise clients to review their giving strategies and confirm the tax status of any NIL organization before assuming a deduction.

State Tax Issues: It’s Not One-Size-Fits-All

State tax implications further complicate the picture. Some states have unique income tax treatments for scholarships, endorsements, or self-employed income—all of which could impact student-athletes differently depending on where they reside or attend school.

For example, California taxes NIL income as self-employment income, subject to state income tax and possibly self-employment tax. Meanwhile, Florida, a state without personal income tax, still requires federal tax compliance and estimated payments.

Cross-border athletes, especially international students on visas, face even more complex withholding and treaty issues—areas where specialized tax help is essential.

For professionals advising athletes, donors, or school-affiliated organizations, the NIL era presents a unique opportunity to offer value:

• Review NIL contracts with a tax lens
  
  
• Educate clients on recordkeeping and estimated taxes
  
  
• Clarify the deductibility (or lack thereof) of collective contributions
  
  
• Evaluate entity structures for clients running NIL businesses or collectives

The NIL landscape is evolving fast, and so is the tax code's response to it. As athletes become entrepreneurs and donors become quasi-investors, the need for proactive, professional tax advice has never been greater.

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