The approval of the House v. NCAA settlement marks a watershed moment in college athletics. In addition to $2.8 billion in back damages to former athletes unable to capitalize on the sale of their name, image, and likeness (“NIL”), the settlement allows institutions to directly compensate student-athletes, fundamentally altering the traditional model of amateurism in college sports. It also requires athletes to report NIL deals to a third-party clearinghouse run by Deloitte, and sets roster limits across sports, while grandfathering current athletes who might otherwise lose their spots. While much of the public discourse has focused on the employment and cultural ramifications of the case, the settlement also introduces (and fails to clarify) a host of complex tax issues that could affect college athletes nationwide. For a comprehensive breakdown of the House settlement in full, please see Whiteford’s recent client alert.

The settlement’s structure raises immediate questions about how these payments will be taxed, how athletes should report their income, and what new compliance burdens they may face. This alert first discusses the tax implications raised by the settlement agreement, with respect to potential audit risks that student-athletes may face in this new environment. Next, it walks through possible tax consequences related to college athlete employment status—an issue left undecided by the settlement. Lastly, it provides insight into how Whiteford’s tax expertise can help athletes, their advisors, brands, and institutions navigate these challenging issues.

1. Potential Audit Risks for College Athletes to Consider

With the House v. NCAA settlement approved, the new compensation model creates a host of potential audit risks and tax complexities for college athletes. Many are now navigating a tax environment rivaling that of professional entertainers and athletes, with several income streams, cross-border issues, and heightened scrutiny from multiple tax authorities. Below are a few key audit risks that college athletes should consider.

Multi-State Tax Filing Obligations and Duty Day Rules

One of the most significant audit risks arises from the potential need to file income tax returns and pay income taxes in multiple states. College athletes receiving NIL income from brands across different states may have previously considered their potential multi-state tax-filing requirements,[1] but House’s direct revenue-sharing payments could trigger different cross-state filing obligations according to the “duty day” methodology, similar to professional sports. Generally, states that use a “duty day” methodology[2] will impose income tax on non-resident professional athletes based on the proportion of the number of days spent in the state playing games, practicing, or training compared to the athlete’s total number of duty days. Before House, college athlete compensation was not tied to their performance on the field, but rather to any nexus their NIL income had to particular states. Because House offers direct payments from universities, the performance element could open the door to new income tax filing obligations, particularly where state “duty day” statutes and regulations are ambiguous as to whether they apply to student-athletes.

A few states have proposed legislation to exempt NIL earnings from state income taxes (up to certain thresholds), but so far, only Arkansas has specifically addressed taxes related to revenue-sharing income in H.B. 1917 (amendments to the Student-Athlete Publicity Rights Act). Other states may follow suit, but until then, the complexity of multi-state filings increases the risk of errors, underreporting, and missed filing obligations, all of which can trigger audits and penalties. This is especially true if schools do not withhold income on behalf of the players. Athletes should maintain detailed travel logs and records to accurately allocate income and comply with state tax laws.

In-Kind Compensation and Valuation Challenges

Athletes are increasingly receiving in-kind benefits as part of their NIL deals, such as apparel and equipment, use of vehicles, and travel and lodging for family members, among others. The IRS generally treats the fair market value of these benefits as taxable income. However, determining the correct value can be challenging, especially for unique items.

To avoid issues down the road and meet their income tax filing and payment obligations, athletes should obtain documentation of the value of each in-kind benefit, report the value as income on their tax returns, and retain records in case of an audit. The failure to properly report in-kind compensation is a common audit trigger, and discrepancies between reported values and actual market prices can lead to additional tax assessments and penalties.

Estimated Tax Payments and Withholding Issues

Athletes classified as independent contractors may be required to make quarterly estimated tax payments to the IRS and, in many cases, to state tax authorities. Failure to make timely payments can result in underpayment penalties and interest charges. Even athletes classified as employees may face withholding issues if their schools do not accurately calculate tax obligations.

Athletes should calculate estimated tax payments based on projected income, monitor payments throughout the year to avoid shortfalls, and potentially adjust payments as income fluctuates, especially with variable NIL and in-kind compensation.

Related-Party Transactions Across Entities

As athletes become more sophisticated in managing multiple streams of income, some may establish business entities (such as LLCs or S corporations) to organize their affairs. While this can provide tax planning opportunities, it also introduces new audit risks. For example, the IRS may scrutinize related-party transactions for compliance with tax rules. The improper use of entity structures can result in disallowed deductions or reclassification of income. College athletes should consult with appropriate professional advisors, including attorneys and CPAs, to ensure that entities are properly formed, maintained, and operated in accordance with state and federal law.

Given the high-profile nature of the House v. NCAA settlement, the significant sums involved across college athletics, and the need to close governmental budget shortfalls, the IRS and state taxing authorities may be inclined to increase enforcement efforts targeting college athletes, their institutions, and even the third-party brands signing endorsement deals. Athletes must be proactive in their tax compliance to minimize the risk of audits and penalties.

2. Employee v. Independent Contractor: Unsettled Status and Tax Implications

The House v. NCAA settlement failed to provide a definitive answer on athlete employment status. Whether college athletes are considered employees or independent contractors is a pivotal issue, as it fundamentally shapes their ability to collectively bargain. Moreover, it also affects the tax obligations, rights, and compliance responsibilities of both athletes and institutions.

The question of whether college athletes are employees or independent contractors is currently the subject of ongoing litigation, regulatory scrutiny, and legislative debate. The National Labor Relations Board previously signaled that certain college athletes may be considered employees under federal labor law.[3] And athletes at Dartmouth and Northwestern have sought to earn employee status through the creation of unionized teams. Yet many factors make earning employee status challenging, such as determining the degree of control universities have over athletes, the athlete’s economic independence from institutions, and definitional variations across states.

Tax Implications of Independent Contractor Classification

If athletes are treated as independent contractors, the following tax obligations, among others, apply:

• Self-Employment Tax: Athletes must pay both the employer and employee portions of Social Security and Medicare taxes (currently totaling 15.3%) on their net earnings, in addition to federal and state income taxes.

• Estimated Tax Payments: Without employer withholding, athletes may be responsible for making quarterly estimated tax payments to avoid underpayment penalties.

• Business Expense Deductions: Independent contractors may deduct ordinary and necessary business expenses, which could reduce their taxable income.

• Recordkeeping Requirements: The burden of maintaining detailed records falls on the athlete, who must substantiate all deductions in the event of an audit.

Tax Implications of Employee Classification

If athletes are classified as employees, then the tax implications change dramatically and include:

• Withholding and Reporting: Universities would be required to withhold federal and state income taxes, as well as FICA taxes (Social Security and Medicare), from athlete compensation. Athletes would receive a Form W-2 at year-end.

• Payroll Tax Compliance: The institution bears the responsibility for payroll tax compliance, reducing the risk of underpayment penalties for athletes but increasing administrative burdens on schools.

• Limited Deductions: Employees generally cannot deduct unreimbursed business expenses, such as training, travel, or equipment, due to the suspension of miscellaneous itemized deductions under the Tax Cuts and Jobs Act. Only expenses reimbursed by the school would be tax-free. That is, as independent contractors, athletes have more flexibility to deduct business expenses.

• Other Considerations: Other aspects of the relationship between a university and its student-athletes may be implicated if a student is also an employee. For example, if an athlete lives in university housing, is that value includable in the athlete’s gross income under IRC § 119? How would scholarships to student-athletes who are also employees be viewed with respect to the university’s tax-exempt status and prohibition on self-dealing?

Given the unsettled nature of the law, athletes and their advisors must monitor developments closely and be prepared to adapt their tax planning and compliance strategies as the landscape evolves.

III. How Whiteford Can Help: Navigating the New Tax Landscape

The House v. NCAA settlement ushers in a new era of opportunity—and complexity—for college athletes. Whiteford has extensive experience working with the IRS and state tax authorities to navigate multi-jurisdictional filing and residency issues, tax reporting problems, and any related penalties.

As the tax landscape for college athletes continues to evolve, proactive planning and expert guidance are essential. Our firm is committed to helping college athletes, their advisors, brands, and institutions minimize tax risks and compliance burdens.