High school athletes with NIL deals can face unexpected tax bills
As tax day approaches, parents of high school athletes with social media and “name, image, and likeness” deals need to make sure that the IRS doesn’t come for their children’s assets.
An overlooked and perhaps unintended consequence of the NCAA’s name, image, and likeness (NIL) policy is that high school athletes can also participate.
High school athletes, who are minors, may be on the hook for any unpaid taxes from NIL deals once they become adults if their parent or guardian hasn’t paid taxes on that income.
“Unlike child actors who have the Coogan Law, there are no protections for these high school athletes if parents fail to file taxes, leaving minors on the hook for tax liens,” Michael Duffy, a managing director at Merrill Lynch Global Wealth and Investment Management, said, referring to state laws that require trust accounts for minors in entertainment and create a fiduciary relationship between the child and parent.
Most college athletes, he said, are provided advice about their tax obligations, “but that doesn’t exist at the high school level.”
Monetizing social media: The first step to revenue generation
Most NIL guidance is geared toward college athletes, who are typically over 18 and considered adults. Even IRS tax guidance on NIL assumes the deals are being made through NIL collectives to college students, not high school athletes.
NIL collectives are independent organizations, typically sponsored by prominent college alumni, using funds from boosters and fundraising to make NIL deals and ways for athletes to monetize their brands.
Because the majority of NIL deals are tied to athletes’ college careers through collectives, NIL funds typically aren’t distributed until the students arrive on campus.
“My son was a college freshman football player in 2021 when NIL was legalized, and deals were presented and vetted,” Delon Turner, founder of 7Even Hills Venture Capital, told Yahoo Finance. “The income must be accounted for, and parents need to grab the bull by the horns and manage that process.”
As a result of his son’s NIL experience, Turner launched PoetrYY, a digital fintech geared to college students and NIL athletes.
“NIL came about because college athletes wanted compensation for jerseys, etc. — and high school students weren’t part of the original calculations,” Turner said. “However, in a free market society, things change, and the blend of social media presence and brand engagement is a gray area for high school students.”
For most student athletes, especially high school athletes, the easiest way to earn money is as a social media influencer, monetizing their social media channels through subscriptions, partnerships, and merchandising.
But this isn’t tax-free income.
Read more: Free tax filing: 7 ways to get your 2023 taxes done
Unlike employees who receive a W-2 where FICA and other taxes are withheld, most of these athletes receive a 1099. So they are responsible for Social Security, Medicare, and state taxes on revenue coming from social media partnerships.
“If they’re elite high school freshmen or sophomores, they’re getting recruited by NIL collectives, but the money generally isn’t going to start flowing until their junior or senior year,” David Balderston, director of legal services at LifeLine Financial Group, told Yahoo Finance. “A cautionary tale about high school athletes is Mikey Williams, who had a huge social media following in high school and was getting real brand dollars, and that situation did not turn out well.”
Williams was a high school basketball star with a major social media following and one of the first high school athletes to sign a NIL deal that capitalized on his social media presence, bringing in massive revenue.
That fame and money attracted attention. He allegedly felt threatened and began carrying a gun for protection, according to The Sporting News. An incident at a house party led to a charge of assault with a deadly weapon, with Williams later pleading guilty to a criminal threat charge.
Williams’s experience is an extreme example of some of the dangers that high school athletes may face with NIL deals and coming into large sums of money. However, the tax consequences of revenue from social media deals are likely to affect more young athletes.
Navigating the tax implications of these social media branding deals using name, image, and likeness can get these athletes in trouble with the IRS if their parent or guardian isn’t paying quarterly estimated taxes.
“Most parents are behind the technology curve, and if they don’t pay taxes on behalf of the minor, the athlete could have tax liens,” Duffy said.
Ignorance of tax laws isn’t an excuse
Yahoo Finance reached out to the IRS to ask about the consequences for a high school athlete whose parent or guardian does not file taxes on their behalf as a minor. Specifically, will they face a tax lien when they turn 18?
A spokesperson for the IRS directed us to Publication 929 (2021), Tax Rules for Children and Dependents | Internal Revenue Service (irs.gov), saying that it depends on various factors.
Ultimately, it’s the athlete’s responsibility to pay all applicable taxes — and ignorance of tax laws or the failure of parents to pay taxes won’t save them from the IRS.
Each state is handling NIL deals for high school athletes differently, with some allowing high school athletes to participate and others not.
There are no uniform regulations, so high school athletes and their parents should speak to a tax professional to make sure they don’t get caught in the IRS’s crosshairs.
Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on X @writesronda
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