The NIL phenomenon is still in a relatively unregulated stage, much like the wild west. However, as things begin to settle down, it is clear that Uncle Sam will want his share of the pie. One source familiar with the dynamics of the NIL marketplace has pointed out that unpaid taxes will likely become a significant issue for athletes receiving name, image, and likeness payments.
Many young athletes are receiving money through NIL deals and spending it without setting aside any funds for taxes. The tax rates vary by state, but federal laws apply universally. For example, the current federal tax rate for a $1 million payment is 37 percent, meaning $370,000 will need to be paid to the federal government by April 15, 2025.
Unlike traditional income where taxes are automatically withheld, NIL payments do not have taxes taken out. This means that young athletes who may have little to no experience with taxes will need to navigate this on their own. If they fail to do so, they could face serious consequences from the IRS in the future.
The source emphasizes that this issue is already arising and will likely continue to be a problem because many athletes are not receiving the necessary information in a timely manner. Failure to address tax obligations could result in a substantial tax bill down the line. While NFL players may have the means to rectify these tax issues later on, athletes who do not make it to that level could face significant financial troubles as a result.