This is the single most common way athletes get burned on NIL money — not by getting scammed, but by spending a check that was never fully theirs. Let's walk through exactly what you owe, why, and how to never get caught off guard.
Why nobody takes taxes out for you
When you work a normal job, your employer is the IRS's middleman. They calculate your taxes, hold that money back, and send it to the government before you ever touch it. Your paycheck shows up already shrunk — and that's actually a gift, because you can't accidentally spend money you never saw.
NIL is different. A brand pays you the full deal amount. If you signed a $5,000 deal, $5,000 hits your account. It looks like $5,000 of spending money. It isn't. Roughly a quarter to a third of it belongs to the government, and they expect you to set it aside yourself.
What you actually owe
When you earn NIL money, the IRS basically treats you as self-employed — like a small business of one. That means up to three kinds of tax:
- Federal income tax. The percentage depends on your total income for the year. More income, higher rate.
- State income tax. Depends on where you live. Some states have none; others take a meaningful slice.
- Self-employment tax (~15%). This is the surprise one. It covers Social Security and Medicare. At a normal job, your employer splits this cost with you. When you're self-employed, you cover the whole thing yourself.
That self-employment piece is why "I'm in a low tax bracket" doesn't save you — the ~15% applies on top, almost no matter what.
A real dollar example
Say you land a $10,000 NIL deal. It's tempting to think of that as ten grand to spend. Here's a rough, simplified picture of where it can go:
| Piece | Roughly |
|---|---|
| Self-employment tax (~15%) | ~$1,500 |
| Federal income tax | ~$1,000–$1,500 |
| State income tax (varies) | ~$0–$700 |
| Total set-aside (~30%) | ~$3,000 |
| Actually yours | ~$7,000 |
So that "$10,000 deal" is really about a $7,000 deal once taxes are accounted for. Plan around the $7,000 and you'll never be blindsided.
The 1099 form — your income is on record
Any company that pays you $600 or more will usually send you a 1099 form at the end of the year. It reports exactly what they paid you. Here's the key part: the IRS gets a copy too. So whether or not you report the income, the government already knows about it.
Deductions can lower your bill
There's an upside to being treated as self-employed: legitimate business expenses can reduce what you owe. Things like equipment, travel for a deal, a portion of your phone bill, or agent and marketing costs may count. The catch is you need proof.
Keep every receipt. A simple folder or a free app is enough — and at tax time it can save you real money.
You may owe taxes four times a year
Because nobody withholds for you, the IRS doesn't want to wait until April. They generally expect estimated taxes paid quarterly — roughly four times a year. Skipping them can trigger penalties. We break this down in our guide to NIL quarterly estimated taxes.
What to do right now
- Open a separate "Taxes" savings account and move 30% of every NIL payment into it the day it lands.
- Start a receipts folder for any business expense.
- Before your first real tax season, spend a couple hundred dollars on one session with a CPA (a tax pro). It's the one professional worth paying early.
For the full picture, see how much to set aside for NIL taxes and our complete guide to NIL money.
Frequently asked questions
Do you pay taxes on NIL?
Yes. NIL income is taxable just like a paycheck, but nobody withholds the tax for you — the full amount arrives looking like it's all yours. Set aside about 30% of every payment so you're covered when the bill comes.
How much tax do you pay on NIL?
Most athletes should plan for roughly 25–35% of NIL income going to taxes — federal income tax, state income tax (if your state has one), plus about 15% self-employment tax for Social Security and Medicare. Use 30% as a safe default.
What happens if I don't report NIL income?
The companies that pay you usually send a 1099 form to the IRS, so the income is already on record. Not reporting it can lead to back taxes, interest, and penalties. Always report NIL income and keep your receipts.
This article is educational and is not personalized financial, tax, or legal advice. Tax figures and limits change and vary by person and state — confirm current details with a licensed professional. Investing involves risk, including possible loss of principal.