By Danny A. Pannese, MST, CPA/ABV/CFF, CVA, CSEP, Paul N. Iannone, JD, CPA, MST, and
Joshua A. Shuart, Ph.D.
November 21, 2025
Student-athletes are now generally permitted to be compensated for the use of their name, image, and likeness (“NIL”). Examples of student-athlete compensation activities may include signing autographs, product endorsements, teaching or coaching at sporting camps, remuneration through social media, and other business opportunities. Many states have enacted NIL laws, and other states are working towards NIL legislation.
NIL Defined
A person’s NIL is protected under the “right of publicity.” This right is intended to protect an individual’s right to the commercial exploitation of their characteristics. Some states have enacted statutes defining and recognizing the right of publicity. For example, under Indiana state law (a state that has a relatively strong right of publicity statute), a right of publicity is defined as a “personality’s property interest in the personality’s: (1) name; (2) voice; (3) signature; (4) photograph; (5) image; (6) likeness; (7) distinctive appearance; (8) gestures; or (9) mannerisms” [Ind. Code Sec. 32-36-1-7].
In 2021, the National Collegiate Athletic Association (“NCAA”) revised their policy to permit NIL student-athlete compensation, provided the arrangement is in accordance with state law. A class-action antitrust legal settlement between student-athletes and the NCAA provided back compensation to student-athletes and opened the door for further expansion of methods of providing student-athlete compensation (“House settlement”) [House v. NCAA, Hubbard v. NCAA, Carter v. NCAA]. Claudia Wilken, a federal judge, approved the settlement on June 6, 2025. Under the reported terms of the settlement, the NCAA is required to pay approximately $2.8 billion over a ten-year period to student-athletes covering the years 2016 to the current year. The settlement agreement also permits schools to pay athletes pursuant to an annual salary cap of approximately $20.5 million per school, with annual increases.
As an outgrowth to the opening of NIL compensation to student-athletes, NIL organizations called “collectives” have emerged. Collectives can assume various forms and types of organizations. The underlying purpose of a collective is to support student-athletes in their quest for NIL deals. Such support can include marketing and business support services and advice. Ancillary to directly supporting student-athletes, collectives provide indirect and intangible benefits to the student’s home school, including retention and recruiting enhancements. Nevertheless, collectives generally have no legal nexus to the student’s home school.
Student-athletes are currently earning NIL income in a variety of activities. These activities include endorsements, appearances at events where they can showcase products, including their own products or services, signing autographs, sponsorship opportunities, endorsement, non-fungible tokens (digital artwork), and social media opportunities. Further, NIL deals allow athletes to earn compensation through third-party activities such as endorsements, social media promotions, and public appearances. However, NIL compensation is not the same as being paid to play. Athletes cannot receive compensation from a school based on athletic performance or for choosing a specific program. Instead, NIL deals must reflect fair market value for services tied to an athlete’s name, image, or likeness.
For tax purposes, whether the contractual requirements and duties required of the student-athlete are such that the collective can exert a certain level of control over them, raises the issue as to whether the student-athlete is an employee or an independent contractor relative to the collective.
While initially taking the view in 2021 that student-athletes were employees of their universities in a memo issued by counsel for the National Labor Relations Board (NLRB), this was rescinded in 2025 and currently the NLRB does not hold that view on this topic.
Amateur v. Professional Athletes
The primary difference between amateur (unpaid) and professional (paid) athletes is the nature of direct compensation specifically for competing in one’s sport. Colleges and universities have long been able to offer proxy payments at Division-I and Division-II level by offering athletic scholarships to pay for part, or all, of the costs of attendance in exchange for competing on that school’s athletic team. Division-III is not permitted to offer athletic scholarships, but there is no prohibition to offer academic scholarships.
Classification of NIL Payments as Royalties or Business Income
NIL payments are either royalties or gross income derived in the conduct of a trade or business. We generally view payments related to intellectual property as royalties. The use or exploitation of a person’s NIL is likely considered the use of intangible property belonging to the athlete. For tax purposes, royalties can be considered or treated as intangible income resulting in a portfolio income classification, or as trade or business income [See Treas. Reg. 1.61-8(a)].
For example, writing one book does not rise to the level of a trade or business, and therefore, the royalties would not be considered self-employment earnings. On the other hand, where an individual writes other books and materials and prepares new editions of the book, such activities will constitute the conduct of a trade or business and will be considered self-employment earnings [Rev. Rul. 68-498, 1968-2 C.B. 377].
With respect to NIL payments made to student-athletes, the IRS Taxpayer Advocate’s web page emphasizes that “[a]ny income from NIL activities including non-cash, is considered taxable income.” It appears that the IRS’ position is that “student athletes are considered independent contractors for tax purposes. They are regarded as self-employed and receive a Form 1099 if their income is more than $600.”
If the school views the student as an employee, the student-athlete would receive a Form W-2, and under current law, would not be entitled to any offsetting deductions on Form 1040, Schedule A. Accordingly, in most cases, NIL payments to student-athletes should be considered trade or business income, and not portfolio income.
Student as a School Employee or Independent Contractor
Pursuant to the NCAA House settlement discussed above, colleges and universities can directly compensate their student-athletes. Whether the student-athlete is an employee or an independent contractor is a question of fact. For employment tax purposes (FICA, Federal unemployment tax, and Federal withholding tax), employees are divided into four categories: (1) an officer of a corporation; (2) a common law employee; (3) a statutory employee; and (4) any individual performing services pursuant to sections 218 or 218A of the Social Security Act. The disputes regarding whether an individual is an employee or an independent contractor principally involve common law employees.
An employer-employee relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished [Treas. Reg. 31.3121(d)-1(c)(2)].
On the other hand, an independent contractor relationship exists if control is limited to the result accomplished and does not extend to the means or methods for accomplishing the result. Other factors that signal an employee relationship include the right to discharge and the furnishing of tools and a place to work. In addition, individuals pursuing independent trades or business offering services to the public, such as physicians, lawyers, dentists, veterinarians, construction contractors, etc. are independent contractors rather than employees. [Treas. Reg. 31.3121(d)-1(c)(2)].
The IRS has identified twenty factors to identify “whether sufficient control is present to establish an employer-employee relationship.” The twenty factors are only guidelines [Rev. Rul. 87-41, 1987-1 CB 296].
Conclusion
Classifying student-athletes as employees or independent contractors is a growing challenge for NIL collectives. As paid college athletics evolve, both athletes and collectives face complex tax implications that could lead to disputes without clear IRS guidance. Collectives exerting control over athletes’ time and performance may be deemed employers, regardless of contract language. Conversely, collectives acting solely as intermediaries for NIL deals are more likely to maintain independent contractor status.
Editor’s Note: The full article presented above, including a list of citations, is available in the Practitioner’s Tax Action Bulletin, as National Tax Advisory Memo (NTA-1334), first published in Issue 21 Dated November 11, 2025, along with other valuable tax practitioner articles. Contact Our Sales Team for a Subscription to Checkpoint’s bi-monthly Practitioner’s Tax Action Bulletin, which is available in print, and online or to add Thomson Reuters Planner CS to your advisory toolkit.
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