INFLCR (NIL income) & 1099 Tax Payments

[Jeff from Jax]

Florida, along with over 210 D1 institutions is using INFLCR to help manage NIL transactions.

All students will use a web portal to look for opportunities (merchants, etc) to generate NIL income & track payments.

IRS has declared that all students will be taxed as independent contractors & their revenue will be recognized as 1099 income.

One of the first things these new entrepreneurs will learn is that income over $400 results in a 1099.
1099 income has no deductions taken out & no employer to pay half of their FICA assessment - meaning no automatic tax refund. Plus you have quarterly payments,

Self-Employment Tax Rate​

The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes#:~:text=The self-employment tax rate,for Medicare (hospital insurance).

Another interesting note is -

Financial aid could be impacted based on NIL compensation.

Consult the UF Office of Student Financial Aid and Scholarships.

https://floridagators.com/sports/2022/1/14/name-image-likeness.aspx

Wonder what the cutoff point is with NIL income ?

How much would an athlete have to make before he/she loses all his financial aid & ends up paying for his tuition, books, housing, & meals ?

If they no longer have a scholarship, will they have to provide their own uniforms & medical care.

Will the athletic dept give them a 1099 for all those cute jump man shoes ?

Would a out of state athlete get the in-state tuition rate or would UF be forced to charge out of state tuition rates ?

FYI
University of Florida/Undergraduate tuition and fees

In-state tuition 6,381 USD,

Out-of-state tuition 28,659 USD

$100k in NIL for an out of state athlete would be still be a nice profit, but not as much as they are probably thinking.

Might keep many more Florida athletes competing for in state schools - especially if they face state as well as federal income taxes !

 

[LizardGrad89]

Florida, along with over 210 D1 institutions is using INFLCR to help manage NIL transactions.

All students will use a web portal to look for opportunities (merchants, etc) to generate NIL income & track payments.

IRS has declared that all students will be taxed as independent contractors & their revenue will be recognized as 1099 income.

One of the first things these new entrepreneurs will learn is that 1099 income has no deductions taken out & no employer to pay half of their FICA assessment - meaning no automatic tax refund.

Self-Employment Tax Rate​

The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes#:~:text=The self-employment tax rate,for Medicare (hospital insurance).

Another interesting note is -

Financial aid could be impacted based on NIL compensation.

Consult the UF Office of Student Financial Aid and Scholarships.

https://floridagators.com/sports/2022/1/14/name-image-likeness.aspx

Wonder what the cutoff point is with NIL income ?

How much would an athlete have to make before he/she loses all his financial aid & ends up paying for his tuition, books, housing, & meals ?

If they no longer have a scholarship, will they have to provide their own uniforms & medical care.

Will the athletic dept give them a 1099 for all those cute jump man shoes ?

Would a out of state athlete get the in-state tuition rate or would UF be forced to charge out of state tuition rates ?

FYI
University of Florida/Undergraduate tuition and fees

In-state tuition 6,381 USD,

Out-of-state tuition 28,659 USD

$100k in NIL for an out of state athlete would be still be a nice profit, but not as much as they are probably thinking.

Might keep many more Florida athletes competing for in state schools - especially if they face a state income tax !

NIL will not impact any players' football scholarship. They are not need based. It will impact the Pell grant, as the income from a high NIL would make that student no longer "needy".

As for taxation, the value of the scholarship has always been considered income, but you can deduct against it the cost of school and books. However, since the athletic scholarship includes room and board, that portion is taxable. NIL actually changes none of this, other than put them in a higher tax bracket.

I doubt the state income tax issue will sway many high school kids, it's just beyond their thought process. Although they will probably regret going to a high tax state after they are faced with that first tax bill.

 

[Jeff from Jax]

NIL will not impact any players' football scholarship. They are not need based. It will impact the Pell grant, as the income from a high NIL would make that student no longer "needy".

As for taxation, the value of the scholarship has always been considered income, but you can deduct against it the cost of school and books. However, since the athletic scholarship includes room and board, that portion is taxable. NIL actually changes none of this, other than put them in a higher tax bracket.

I doubt the state income tax issue will sway many high school kids, it's just beyond their thought process. Although they will probably regret going to a high tax state after they are faced with that first tax bill.

LG 89,

I'm not a CPA or a tax attorney, all I know is the warning posted on the UF website -

Financial aid could be impacted based on NIL compensation.

In my experience, when someone warns you that something could happen, it pretty much guarantees that it will.

NIL compensation, so far, is only offered to athletes & only because the NCAA found many compromising job activities & payrolls & prohibited athletes from working.

How things will work out is anyone's guess. I assume that the IRS will adjudicate some test cases soon & post the results.

Money much better for the top 1%, but don't think that the majority of student athletes will be getting any net after tax windfall amounts.

OL will probably get screwed, oh well, nothing new there.

 

[LizardGrad89]

LG 89,

I'm not a CPA or a tax attorney, all I know is the warning posted on the UF website -

Financial aid could be impacted based on NIL compensation.

In my experience, when someone warns you that something could happen, it pretty much guarantees that it will.

NIL compensation, so far, is only offered to athletes.

How things will work out is anyone's guess. I assume that the IRS will adjudicate some test cases soon & post the results.

Money much better for the top 1%, but don't think that the majority of student athletes will be getting any net after tax windfall amounts.

OL will probably get screwed, oh well, nothing new there.

Yes, it impacts Pell Grants and other need based financial aid. It does not impact the athletic scholarship.

I am a CPA, so, there you go.

 

[Jeff from Jax]

Yes, it impacts Pell Grants and other need based financial aid. It does not impact the athletic scholarship.

I am a CPA, so, there you go.

LG 89,

I looked on the inflcr website & they mostly talked about students athletes having opportunities in the $300 to $500 range. Obviously the money paid to the top 1% would be more, but no way is every athlete getting the big bucks.

They way they are setting up the inflcr website, it is just a hunting license with no guarantees. IMO, every athlete will NOT even get NIL money.

With "out in the open" (taxable) NIL money replacing under the table (McDonalds' Bag) money, IRS is bound to jump in with both feet to get their "fair share."

The maximum Federal Pell Grant award is $6,495 ($125/week) for the 2022–23 award year (July 1, 2022, to June 30, 2023).
https://studentaid.gov/understand-aid/types/grants/pell

Doubt the Federal government cares about student athletes enough to give them special tax breaks which will allow them to maximize & keep both Pell Grant & NIL money.

Have no idea how "need" is defined for Pell Grant purposes, but gross NIL income (over a set limit) could easily reduce Pell Grant income dollar for dollar & still leave you with a tax liability & quarterly payments.

EDIT
Florida, Tennessee, & Texas only SEC schools with no state income tax.
https://www.thebalance.com/state-income-tax-rates-3193320

Remember the IRS is part of your government & they are here to help you !

 

[LizardGrad89]

LG 89,

I looked on the inflcr website & they mostly talked about students athletes having opportunities in the $300 to $500 range. Obviously the money paid to the top 1% would be more, but no way is every athlete getting the big bucks.

They way they are setting up the inflcr website, it is just a hunting license with no guarantees. IMO, every athlete will NOT even get NIL money.

With "out in the open" (taxable) NIL money replacing under the table (McDonalds' Bag) money, IRS is bound to jump in with both feet to get their "fair share."

The maximum Federal Pell Grant award is $6,495 ($125/week) for the 2022–23 award year (July 1, 2022, to June 30, 2023).
https://studentaid.gov/understand-aid/types/grants/pell

Doubt the Federal government cares about student athletes enough to give them special tax breaks which will allow them to maximize & keep both Pell Grant & NIL money.

Have no idea how "need" is defined for Pell Grant purposes, but gross NIL income (over a set limit) could easily reduce Pell Grant income dollar for dollar & still leave you with a tax liability & quarterly payments.

EDIT
Florida, Tennessee, & Texas only SEC schools with no state income tax.
https://www.thebalance.com/state-income-tax-rates-3193320

Remember the IRS is part of your government & they are here to help you !

Well, I could post the table of eligibility and a bunch of other stuff, but it's all available on the net for those with an interest.

The upshot is, the more money you and your parents have or make, the less Pell grant you get. If you earn significant NIL, it will cut into your pell grant.

If you are getting NIL money, which is self-employment income, you start paying tax after you make $400 in a year. So all these kids will be paying tax and they will need help with their taxes, as they will want to set themselves up as a business (I would recommend a disregarded LLC, but it's not required), that way they can deduct expenses such as they may be.