Tax Considerations in NIL Deals: An Overview

Photo of Joshua D. Sandler
Joshua D. Sandler
Associate, Tax Department
Published: McLane Middleton
November 9, 2023

Tax issues have plagued some of the world’s greatest athletes, like Pete Rose, Mike Tyson, and Lionel Messi.  While the evolving Name, Image, and Likeness (“NIL”) market creates new business opportunities for student-athletes, it can also trigger new tax issues for them.  Building on the previous writings of McLane Middleton’s Sports Law Practice Group regarding NIL developments and the treatment of student-athletes as employees versus independent contractors under the Fair Labor Standards Act, the purpose of this article is to provide a brief overview of some of the tax issues to consider in the NIL context.

Federal Tax Considerations

Perhaps the most important tax point to keep in mind is that student-athletes are generally considered independent contractors and not employees in the context of their NIL deals for federal tax purposes.  An employer withholds taxes from payments to an employee, deposits the taxes on behalf of the employee, and issues the employee a Form W-2 showing the amounts of tax withheld and income received.  The hirer of an independent contractor issues a Form 1099 and withholds no taxes from payments to the independent contractor.  Rather, the independent contractor—here, the student-athlete—is responsible for making tax payments directly.  Several related federal tax issues may arise for the student-athlete, such as: (1) liability for self-employment taxes in addition to income taxes, (2) deductibility of certain expenses incurred by the student-athlete to generate the NIL income, and (3) responsibility for filing his or her own income tax return separate from a parental income tax return.

State Tax Considerations

In addition to the federal government, one or more states may impose tax liabilities on a student-athlete with NIL income.  For example, imagine a student-athlete from Massachusetts who attends a college in New Hampshire near the border of Vermont and has some NIL-related activities in each state.  Careful analysis of the specific facts and tax rules in each state is necessary to determine which state or states may tax the student-athlete.  It could be all three.

What is “Income”?

One final tax trap involves the concept of taxable “income.”  A student-athlete may think of income as a paycheck or cash.  However, for tax purposes, “income” is much broader than that.  For example, if a car dealership provides an athlete “free” use of a car in exchange for a number of appearances promoting the dealership, the value of that car usage is taxable income to the student-athlete, even though no cash changed hands.  That means the student-athlete could owe a tax liability in cash without having received any cash with which to pay the liability.  The student-athlete might consider negotiating for some portion of payment in cash to mitigate this problem.


With careful planning, a student-athlete can navigate the tax issues above and profit from NIL deals without joining the list of famous athletes with tax problems.  Otherwise, the Internal Revenue Service and state authorities may impose tax liabilities, penalties, and interest.  We encourage any party considering an NIL deal to consult a tax advisor.