⚠ Important: This is educational content, not tax advice. NIL tax rules are complex and vary by state. Consult a CPA or tax attorney for your specific situation. Full disclaimer →

The Bottom Line: Yes, the IRS Expects Taxes

The IRS treats NIL income like any other self-employment income. If your kid earns more than $400 in net NIL income in a year, they must file a tax return. Not optional. Not for "big" deals only. If they earn more than $400, they owe.

Here's what most families don't understand: when your kid gets paid NIL money, there's no withholding. Unlike a job where taxes come out of the paycheck automatically, NIL income comes to you 100%, and the athlete is responsible for setting money aside to pay taxes in April.

15.3%

Self-Employment Tax

On top of regular income tax. This covers Social Security and Medicare — the same tax an employer would normally split with you.

$400

Filing Threshold

If your athlete earns more than $400 in net NIL income, they must file. Not $10,000. Four hundred dollars.

25–33%

Total to Set Aside

Combine self-employment tax + regular income tax + state taxes. A safe estimate is 25–33% of gross NIL income.

1099 Forms

What You'll Receive

1099-NEC from direct payers, 1099-K from payment processors. These are reported to the IRS automatically.

Understanding NIL Tax Forms

1099-NEC — This is what you get when a brand or collective pays you directly. The company sends it to you and to the IRS. Example: a car dealership pays $5,000 for an Instagram post. They'll send you a 1099-NEC.

1099-K — This is what you get when the payment comes through PayPal, Venmo, CashApp, or similar platforms. If payments through a platform total more than $5,000 in a year (or $20,000 + 200 transactions), they send a 1099-K to you and the IRS.

Free Products Are Taxable — If a brand gives your kid free gear, apparel, trips, or cars in exchange for promotion, the IRS treats that as taxable income at fair market value. A free pair of $200 sneakers is taxable income of $200. A trip worth $5,000 is taxable income of $5,000.

The Math: How Much Will Your Kid Owe?

Let's work through real examples.

Example 1: $5,000 Deal

Gross NIL income: $5,000
Self-employment tax (15.3%): $765
Regular income tax (assume 22% bracket): $1,100
State tax (varies): $100–$300
Total tax owed: $1,965–$2,165
Net after taxes: $2,835–$3,035

Example 2: $25,000 Deal

Gross NIL income: $25,000
Self-employment tax (15.3%): $3,825
Regular income tax (assume 24% bracket): $6,000
State tax (varies): $500–$2,000
Total tax owed: $10,325–$11,825
Net after taxes: $13,175–$14,675

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Pro Tip: Set Aside 30% Immediately

When your kid gets paid, put 30% of the gross amount into a separate savings account. Don't touch it. This covers federal self-employment tax, regular income tax, and provides a buffer for state taxes or if your kid has other income. It's the safest approach.

Estimated Quarterly Tax Payments

If your kid is earning substantial NIL income (more than a few thousand dollars), the IRS might expect estimated quarterly tax payments. This means paying taxes four times a year (April 15, June 15, September 15, December 31) instead of waiting until April 15 of the next year.

If your kid doesn't make estimated payments and ends up owing more than $1,000 at tax time, the IRS can charge underpayment penalties.

When to make estimated payments: If your kid is projected to owe $1,000 or more in taxes, talk to a CPA about filing estimated quarterly tax returns. It's not difficult, and it prevents penalties.

Deductible NIL Business Expenses

Not all NIL income is taxable at 100%. Your kid can deduct legitimate business expenses. This lowers taxable income and the tax bill.

Deductible expenses include:

Social media management software (scheduling, analytics tools)
Photography and videography (equipment, editing software, professional photographers)
Content creation costs (graphics, video editing, post-production)
Professional fees (agents, managers, attorneys who review contracts)
Coaching for content creation (not athletic coaching)
Equipment used exclusively for content (camera, microphone, lighting, tripod)
Office supplies and computer equipment for NIL business

NOT deductible:

General athletic training or coaching
Equipment used for both sport and content
Personal expenses disguised as business expenses
Meals and entertainment (with narrow exceptions)

State Taxes on NIL Income

In addition to federal taxes, most states tax NIL income too. State rates vary from 0% (Texas, Florida, Nevada) to 10%+ (California, New York).

If your kid is being paid by a brand in another state, you might owe state taxes in both your home state and the state where the payer is based. This gets complicated. A CPA can clarify your specific situation.

When to Hire a CPA

If your kid's NIL income is under $5,000 and they have no other business expenses, you can probably handle taxes yourself using TurboTax or similar software. But once NIL income exceeds $5,000, or involves multiple deals, deductions, or estimated payments, hiring a CPA is worth it.

A CPA should cost $300–$800 and will pay for itself by finding deductions you'd miss. They'll also answer questions about estimated payments, state taxes, and next-year planning.

What to look for in a CPA: Find someone with sports or entertainment industry experience. They should be familiar with athlete taxes, self-employment income, and NIL specifically. Ask about their experience with 1099 income and independent contractors. Some CPAs specialize in athlete taxes and can provide year-round planning — not just tax prep.

Common NIL Tax Mistakes to Avoid

Mistake 1: Not setting money aside. The money comes in, the family spends it. April comes, they owe $5,000 and don't have it. Set aside 30% immediately.

Mistake 2: Assuming the brand handles taxes. They don't. The brand sends 1099 forms to the IRS. Your kid must file a return and pay.

Mistake 3: Not reporting free products. Your kid gets free gear. The family doesn't report it as income. The brand counts it as a business expense (so they have records), and if audited, the IRS could assess unreported income. Report everything.

Mistake 4: Mixing personal and business. Your kid uses their personal tax ID or bank account for NIL. This makes deductions harder to prove. Open a separate bank account and keep receipts for all business expenses.

Mistake 5: Not keeping records. No receipts, no evidence of deals or expenses. The IRS can disallow deductions without documentation. Keep everything: deal confirmations, payment receipts, invoices, contracts.

Tax Questions Families Ask

Answers to the most common NIL tax questions.

Does my kid need to report NIL on their college FAFSA?

Yes, but it depends on the structure. NIL income is reported as income on the FAFSA, which can affect financial aid. However, there's ongoing debate about whether NIL should be counted differently. Check with colleges directly — some have already stated NIL won't affect financial aid packages, others haven't yet decided.

Can I claim my kid as a dependent if they have NIL income?

Yes, in most cases. NIL income doesn't automatically disqualify them as a dependent. But if NIL income is very high (over roughly $14,000 in 2026), they may not qualify as a dependent. A CPA can advise based on your specific situation.

What if the brand doesn't send a 1099 form?

Your kid still has to report the income on their tax return, even without a 1099. The IRS tracks people who claim to have no income but receive money through payment platforms. It's safer to report everything voluntarily than to hope the IRS doesn't find out.

Can my kid deduct equipment they use for both sport and NIL?

Not fully. You can deduct the portion used for NIL content creation, but this requires splitting the cost. Example: a camera used 80% for content, 20% for personal use — deduct 80%. Keep records proving the split.

Do I need to file a separate business tax return for NIL?

Not necessarily. Most high school athletes can report NIL income and deductions on Schedule C attached to their personal 1040 return. College athletes might use Form 1040-ES for estimated payments. A CPA will advise based on income levels.

What happens if we don't pay taxes on NIL income?

The IRS can assess penalties and interest. If it's a small amount, they may not pursue it aggressively. But if it's significant (thousands of dollars), expect interest charges, penalties for underpayment, and possible audit. It's not worth the risk.

Can my kid claim the Earned Income Tax Credit (EITC)?

EITC is for earned income from W-2 jobs, not self-employment income. NIL doesn't qualify. But other credits might apply depending on income level and other factors. A CPA can review.

NIL Tax Guide: What Every Family Needs to Know in 2026