NIL Tax Guide for Parents | Help Your Student-Athlete Navigate Taxes

Your Role as a Parent

NIL income creates exciting opportunities for your student-athlete—but it also brings complex tax responsibilities they may not be prepared to handle alone. As a parent, you play a critical role in helping your athlete understand, manage, and comply with NIL tax obligations.

The good news: With the right guidance and systems in place, managing NIL taxes doesn't have to be overwhelming. This guide will help you:

Understand how NIL income affects your family's taxes
Navigate dependency status and financial aid implications
Set up tracking systems to stay organized
Determine whether you should claim your athlete as a dependent
Identify tax credits and deductions available to your family
Recognize red flags and avoid common mistakes

Don't Wait Until Tax Season

Many families wait until April to deal with NIL taxes—and by then it's too late to implement tax-saving strategies. The best time to plan is NOW, before your athlete signs their first NIL deal.

Understanding NIL Income & Taxes

What Parents Need to Know About NIL Taxation

NIL Income Is Self-Employment Income

Your athlete is treated as a self-employed business owner for tax purposes. This means:

They owe self-employment tax (15.3%) on net earnings over $400
They must make quarterly estimated tax payments
They can deduct business expenses related to NIL activities
They're responsible for both the employee and employer portions of FICA taxes

All NIL Income Is Taxable

Cash payments, free products, services, meals, travel—everything has taxable value:

$10,000 cash payment: $10,000 taxable income
$2,000 worth of free shoes/apparel: $2,000 taxable income
Free meal at sponsor event ($100 value): $100 taxable income

Tax Estimate

As a general rule, your athlete should set aside 25-35% of every NIL payment for taxes. This covers federal income tax, self-employment tax, and state income tax.

Dependency Status: Should You Claim Your Athlete?

One of the most common questions parents ask: "Should I claim my athlete as a dependent?"

The IRS Tests for Claiming a Dependent

To claim your student-athlete as a dependent, they must meet ALL of these requirements:

Relationship: They are your child (biological, adopted, stepchild, etc.)
Age: Under 19 at year-end OR under 24 if a full-time student for at least 5 months
Residency: Lived with you for more than half the year (exceptions for college students)
Support: You provided more than half of their total support for the year
Joint Return: They didn't file a joint return (unless only to claim a refund)

The "Support Test" and NIL Income

This is where NIL income complicates things. To meet the support test, you must provide MORE than half of your athlete's total support.

Total support includes:

Tuition, room, board (if not covered by scholarship)
Food, clothing, transportation
Medical and dental care
Recreation and entertainment
NIL income your athlete uses for their own support

Example

Your athlete receives a full scholarship ($50,000 value) and earns $30,000 in NIL income. You provide $15,000 in additional support (car, phone, clothes, spending money). Total support = $95,000. Your $15,000 is less than half, so you CANNOT claim them as a dependent.

Should You Claim Them? Consider These Factors:

Benefits of Claiming Your Athlete

If you claim them as a dependent, you may receive:

American Opportunity Tax Credit (AOTC): Up to $2,500 per year for qualified education expenses
Lifetime Learning Credit: Up to $2,000 per year
Dependent exemption: Reduces your taxable income
Head of Household status: If you qualify

Drawbacks of Claiming Your Athlete

If you claim them, your athlete CANNOT:

Claim their own standard deduction ($14,600 for 2024)
Claim their own personal exemption
File as independent on the FAFSA

Bottom line: Run the numbers both ways. We can help you determine which filing strategy saves your family the most money.

NIL Income & Financial Aid (FAFSA)

NIL income can significantly impact your athlete's financial aid eligibility. Here's what you need to know:

Impact on the FAFSA

NIL income is reported as student income on the FAFSA
Student income reduces aid eligibility more than parent income
Students can protect the first $7,600 of income (2024-2025 protection allowance)
50% of student income above the protection allowance reduces aid eligibility

Example

Your athlete earns $20,000 in NIL income. After the $7,600 protection allowance, $12,400 is counted. 50% of that ($6,200) reduces their Expected Family Contribution (EFC), potentially reducing need-based aid by that amount.

What's NOT Affected

Athletic scholarships: NIL income does NOT reduce athletic scholarship money
Merit-based scholarships: Typically not affected by NIL income
NCAA eligibility: NIL income does not impact eligibility to compete

What IS Affected

Pell Grants: Need-based federal grants may be reduced
Subsidized loans: Need-based loan eligibility may decrease
Work-study: Work-study eligibility may be reduced
State grants: State need-based aid may be affected

Strategy

Work with your school's financial aid office BEFORE your athlete signs major NIL deals. They can help you understand the impact and explore options to minimize aid reduction.

Education Tax Credits (AOTC & LLC)

If you claim your athlete as a dependent, you may qualify for valuable education tax credits:

American Opportunity Tax Credit (AOTC)

Maximum credit: $2,500 per student per year
Requirements: First 4 years of college, at least half-time enrollment
Income limits (2024): Full credit if MAGI under $80,000 (single) or $160,000 (married); phases out above those amounts
40% refundable: You can receive up to $1,000 even if you owe no tax
Qualified expenses: Tuition, fees, required books and materials

Lifetime Learning Credit (LLC)

Maximum credit: $2,000 per tax return (not per student)
Requirements: Any level of postsecondary education, even one course
Income limits (2024): Phases out between $80,000-$90,000 (single) or $160,000-$180,000 (married)
Not refundable: Can only reduce tax owed to $0

Important

You can only claim ONE credit per student per year (AOTC or LLC, not both). The AOTC is usually more valuable if your athlete qualifies.

Setting Up Tracking Systems

Help Your Athlete Stay Organized

Good record-keeping is essential for NIL tax compliance. Help your athlete set up these systems:

1. Income Tracking

Keep a spreadsheet of all NIL income (date, source, amount, cash or non-cash)
Save all 1099 forms received in January
Track payments received via PayPal, Venmo, Cash App, Zelle
Document fair market value of free products and services

2. Expense Tracking

Use an app like Expensify, QuickBooks Self-Employed, or Wave
Photograph and save all receipts
Categorize expenses (travel, marketing, equipment, agent fees, etc.)
Track mileage for NIL-related driving

3. Separate Bank Account

Open a separate checking account for NIL income
Deposit all NIL payments into this account
Pay NIL expenses from this account
Transfer 30% of each payment to savings for taxes

4. Contract & Agreement Storage

Keep copies of all NIL contracts and agreements
Save emails confirming deals and payments
Document any changes or amendments

Monthly Review Checklist

Review income received - Ensure all NIL payments are recorded
Categorize expenses - Organize receipts and assign categories
Set aside tax money - Transfer 30% to tax savings account
Update projections - Calculate estimated quarterly payment needed

Red Flags & Common Mistakes to Avoid

Watch out for these warning signs that your athlete may be headed for tax trouble:

⚠️ Red Flags

Spending all NIL income: No money set aside for taxes
Not tracking income: Can't tell you how much NIL money they've earned
No receipts: Claiming deductions without documentation
Missing deadlines: Forgetting quarterly payment due dates
Not reporting non-cash compensation: Thinking free products aren't taxable
Ignoring 1099 forms: Not understanding what they mean
Multi-state income without planning: Earning in multiple states without guidance

🚫 Common Mistakes

Waiting until April to think about taxes
Not making quarterly payments
Failing to report cash payments
Overstating deductions without proper documentation
Not understanding state tax obligations
Signing contracts without reviewing tax implications

When to Call a Professional

If your athlete earns more than $10,000 in NIL income, receives income in multiple states, or gets an IRS notice—it's time to work with a tax professional who specializes in NIL taxation.

Action Steps for Parents

Here's what you should do RIGHT NOW to help your athlete succeed with NIL taxes:

Parent Action Plan

Have "the tax talk" - Sit down with your athlete and explain NIL tax responsibilities
Set up tracking systems - Help them create spreadsheets or choose expense tracking apps
Open separate bank account - Keep NIL income separate from personal money
Create tax savings account - Set aside 30% of every payment
Calculate dependency status - Determine if you should claim them as a dependent
Review financial aid impact - Talk to school's financial aid office
Schedule consultation - Meet with a NIL tax specialist BEFORE signing major deals
Review contracts together - Read NIL agreements before your athlete signs
Mark quarterly deadlines - Add April 15, June 15, Sept 15, Jan 15 to calendars
Stay involved - Monthly check-ins to review income, expenses, and tax savings

Let's Create a Family Tax Strategy

Schedule a consultation for you and your athlete. We'll review your situation together and create a tax plan that works for your entire family.

Schedule Free Consultation 248-918-0525