Don't Mess With Taxes

Photo via Unsplash+ in collaboration with Getty Images

College football fans are in heaven. The 2023 NCAA bowl season is underway.

The first of the 42 games kicked off this morning in with Georgia Southern meeting Ohio in the Myrtle Beach Bowl. The event's sponsoring name notwithstanding, the event is actually more inland, at Brooks Stadium in Conway, South Carolina.

There are six more games today, all as appetizers to the main menu meal, the College Football Playoff National Championship Game in Houston on Monday, Jan. 8, 2024.

The one downside this year is the number of notable players — 45 by one recent count — on bowl teams who have opted out to prepare for the NFL Draft. That's understandable. College football players with an eye on big-dollar professional football contracts don't want to risk injury in what for most is a meaningless game.

Most of these players also probably have Name Image Likeness, or NIL, agreements. This is the NCAA policy that lets student athletes benefit financially from their popularity without jeopardizing their eligibility.

Many NIL options, complications: There are myriad opportunities for the young players to make some money. They include guest appearances at clubs and schools, autograph signings, exhibitions, sponsorships, endorsements, content creation/influencer activities, non-fungible tokens, gifts, and giveaways, such as gift cards.

And let's not forget the payoff potential of endorsements, apparel sales, corporate partnerships, charitable appearances, and teaching camps. Some student athletes have started their own businesses, developing specialty merchandise.

But things can get complicated. The athletes and their families must sort through all the offers to ensure which are legitimate and which could backfire.

There also are possible college financial aid issues.

The NCAA has released general guidance for college financial aid offices, but it only states that NIL income should be taken into account in determining the amount of financial aid and does not consider the impact of NIL on student income.

Taxes are clear: However, one thing is certain. As the Taxpayer Advocate Service graphic below notes, any income a student athlete receives from a NIL agreement is taxable.

The Internal Revenue Service is serious when it says any. All income from NIL activities, including non-cash compensation, is considered taxable income.

That's why, on this opening day of the 2023 NCAA bowl season the ol' blog's Saturday Shout Out goes to a recent Taxpayer Advocate Service blog item, Student Athletes Involved in Name Image Likeness (NIL) Agreements Should Be Aware of Their Tax Obligations.

NIL tax advice: "NIL opportunities have provided new revenue sources for student athletes that, in some instances, may reach significant sums according to some media outlet rankings of the highest estimated financial value of student athlete NIL agreements," writes National Taxpayer Advocate Erin M. Collins.

"Due to the potential tax consequences, student athletes should exercise appropriate due diligence before entering into NIL agreements," adds Collins. "It is crucial to follow relevant IRS and state guidance on how to report and pay taxes on NIL income."

The blog post elaborates on the recent history of NIL deals, and the challenges it has created.

As for the tax considerations, Collins' post cites TAS NIL Get Help page, which has resources for student athletes in such areas as federal tax reporting, withholding, estimated tax payment, and return filing requirements associated with NIL income.

Good luck to all the student athletes playing in football games over the next few weeks. May you come through the games safely so you can enjoy next season, either returning to your college team or as a rookie professional player.

Don't rely on luck, though, in your off-field NIL or NFL taxable earnings. The IRS can be a formidable foe, so get yourself a good financial and tax advisor. That's advice that applies to all us non-athletes, too.

You also might find these items of interest:

• Big-time tax-free college football is back in full force
• When the Taxpayer Advocate Service can, and can't, help
• Tax implications far from nil for college athletes' NIL money
• Navy vs. Notre Dame kicks off college football season 2023 and the associated sports betting

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