NCAA athletes face tax consequences following rule change on earning money

Now that college athletes can make money off their Name, Image, and Likeness (NIL) after the NCAA passed new rules in June 2021, they could be in for a costly surprise from Uncle Sam.
Money made from social media accounts and perks like free shoes, a clothing allowance, or use of a car can be taxable, and ignorance of tax laws won't save athletes from the IRS.
"NIL representation in college is not the same as agent representation for the NFL or NBA where there is an attorney or accountant in house, [NIL] is just representation, no one telling you to put taxes aside," the former said NFL and Hofstra University footballer Devale Ellis told Yahoo Money, "A lot of these kids are signing these deals and are unaware of the tax implications."
That's how it breaks down.
2021 Division I Women's Outdoor Track and Field Championships (Getty Images)
What is taxable income?
For many student athletes, the easiest way to make money is as a social media influencer who monetizes their social media channels.
"Some of these kids come out of high school with 200,000 followers on social media, so the brand is immediately monetizable," said Mekka Don, a former Ohio State University soccer player, entertainer, and attorney specializing in media opportunities, licensing, and endorsement deals for artists and athletes.
According to Juan Rodriguez, a chartered accountant and founder of Lodgz Financial PLLC, most content creators earn income from partnerships, merchandise, donations or tips, and subscriptions — known as subs.
"This isn't tax-exempt and they need to track and report that income," Rodriguez told Yahoo Money, recommending an accounting software like QuickBooks or Xero, "to make sure they're reporting all of the income that has reached their account during the calendar year." ”
Other benefits that athletes may receive — from shoes to clothing to cars — may also be taxable, even if they're not direct income.
"These kids get deals to drive a car for a year in exchange for a bunch of social media posts or an unlimited permit to spend on the Nike website," Don said. "Just because there is no actual exchange of money does not mean there is no taxable value."
Determining a dollar amount can be difficult, but the value of these items is taxable. This is where having an accountant comes in handy.
"An athlete who receives a year's use of a car from a local dealership to appear in their commercials must report the value of that use as income," said Katie Davis, CPA, partner at James Moore & Company and head of the company's Collegiate Athletics Services division.
What taxes do athletes have to pay?
When most people work, they receive a paycheck with taxes collected by their employer. At the end of the year, they receive a W-2 form. In contrast, athletes, entertainers, and social media influencers are typically considered entrepreneurs who are self-employed and receive a 1099 tax form documenting their income.
"If you get paid with a W-2, you get FICA taxes deducted," said Stacie Jacobsen, director of the wealth strategies group and co-head of the sports, media and entertainment group at Bernstein Private Wealth Management. "But most of these athletes get a 1099 as independent contractors, so they're responsible for Social Security, Medicare, and state taxes.
The story goes on

Last News

Pennsylvania Senate runoff: RNC intervenes to block McCormick absentee ballot move as Dr. Oz leads

WSJ Opinion: Hillary Clinton’s ‘Trump, Russia’ Disinformation Plant

Biden's Taiwan pledge was no 'gaffe,' says analyst

Taiwan radio enthusiasts tune in as Chinese, U.S. warplanes crowd sensitive skies

Russia demands that the world 'demilitarize' the internet and accuses the West of 'cyber-totalitarianism'

Jason Momoa and James Wan reportedly blocked efforts to cut Amber Heard out of Aquaman 2