Frequently Asked Questions
Taxes for Athletes Engaging in NIL
Courtesy of Courtney Knoll, Ph.D., Clinical Professor of Accounting, Associate Dean of the Master of Accounting Program at UNC Kenan-Flagler Business School, and Executive Director of the UNC Tax Center. DISCLAIMER: THIS IS INTENDED TO BE INFORMATIONAL ONLY AND DOES NOT PROVIDE ANY TAX ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT YOUR SPECIFIC SITUATION, PLEASE CONSULT A LICENSED TAX ADVISOR, (e.g., a Turbo Tax Expert).
Questions
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I am an international student. Does the information in these FAQs apply to me?
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How do I know how much total income I received in the current year?
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Do I have to pay taxes if someone else claims me as a dependent on their tax return?
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How do I know if I can be claimed as a dependent by someone else, and how does this affect my tax return?
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1. I am an international student. Does the information in these FAQs apply to me?
Probably not! If you are an international student, your US tax situation is likely very different than it would be if you were a US citizen, and these differences vary depending on your home country. But don’t despair, here are two great resources for tax information and support, including tools to file:
2. What types of income are subject to taxes?
Your total income is composed generally of three types:
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NIL / Self-employment income: If instead of working for an employer, you work for yourself, then you likely have what is called “self-employment income.” In most cases, NIL income falls into this bucket. You will owe self-employment tax if your net earnings from self-employment is $400 or more. However, if the only income you have in the current year is self-employment income, then you won’t owe any federal income taxes unless your net earnings from this self-employment is more than the minimum threshold.
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Investment income; This is income received from investments like interest on a savings account, stock sales, real estate sales, etc. If your total investment income is more than $2,500 and you have at least one living parent, you may be subject to something called the “kiddie tax.”
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The kiddie tax is a tax you may owe if you have at least one living parent and have investment type income greater than $2,500. Without getting into all the weeds, the kiddie tax means you would pay a higher tax rate on some of your investment income. If you think you might be subject to this tax, touch base with that parent so you can learn more about how to properly compute your taxes or speak with your TurboTax tax expert. Here are the basics on how you calculate tax if you are subject to the kiddie tax:
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The first $1,250 is tax free
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The next $1,250 is subject to tax at your income tax rate
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So, in 2023, anything above the first $2,500 (i.e., $1,250 tax free + $1,250 subject to tax at your rate) is subject to tax at your parent’s tax rate (which is usually higher than your rate).
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Wage income: This is income from a normal job (e.g., working at coffee shop or interning at a company). If this is your only income, you likely won't have to pay taxes on any amount below $13,850 (check this tax year's threshold). This threshold usually increases each year, so consult with your TurboTax expert to confirm what it is for a given year.
Note: Check to verify this tax year's thresholds
3. How do I calculate net earnings from self-employment?
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Net earnings from self-employment is calculated as gross self-employment income (generally from Form 1099-NEC mentioned above) less certain expenses related to such income. Expenses may include travel expenses (e.g., airfare, rental car, agent fees, attorney fees, etc. But be careful! You need to be well organized and keep track of the documents (e.g., receipts, invoices) that support the amount you are claiming as a deduction against your self-employment income. Although you don’t include this documentation when you file your return, you are required to have it and should save it for at least three years after you file your return.​​​
4. How do I know how much total income I received in the current year?
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When it comes time to file your return, you’ll need to collect all the information needed to summarize your total income. The starting point will be knowing how much income you received during the year. Whoever paid you may have to help you out by sending you a form showing you how much they paid you during the year, as well as how much in taxes they withheld and paid on your behalf. The type of form you receive depends on the type of income you received.
If you earned income working for an employer (e.g., a barista at a coffee shop), you should receive a Form W-2 from your employer stating the income you received from that job as well as how much taxes were withheld on your wages during the year. A Form W-2 acknowledges payments to individuals who are employees. This income must be reported as earned income on your tax return. If you do not receive a W-2 from someone for whom you worked, the income you received must still be included as income on your tax return.
If you received $600 or more in self-employment income (e.g., you made money delivering meals through a food deliver app, or a local bagel shop paid you to attend a special event), you will likely receive a Form 1099-NEC (“NEC” stands for “non-employee compensation”) from the entity that paid you. This form acknowledges payments to individuals who are not considered to be employees. This income must also be reported on your tax return. If you received less than $600 in NIL income, you may not receive a 1099-NEC, but you must still report this income on your tax return.
If you received investment income (e.g., interest income) over a certain dollar amount, you may receive a Form 1099 with a “-“ and some letters next to it. The letters will indicate the type of investment income (e.g., “INT” for interest and “DIV” for dividends.) This income must also be reported on your tax return. If you had investment income, but do not receive a 1099, you must still report this income on your tax return.
5. How do I figure out how much tax I owe?
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To determine your current year total federal income tax, you first need to calculate your current year taxable income. Taxable income is calculated as your gross income less any available deductions. For most people, gross income includes all income received during the year. This includes all cash, the fair value of any non-cash (i.e., “in-kind”) items or services received, investment income, and any net earnings from self-employment (see above for more). “In-kind” income may include things you receive (other than money) in exchange for services, even if it is called a “gift.” This may include items such as clothing, food, cars, or other services.
Gross income is reduced by the greater of two amounts: (1) a set dollar amount (called the “standard deduction”) or “itemized deductions.” Generally, if your itemized deductions are greater than the standard deduction, you'll want to itemize. By maximizing the additional business deductions available to you for being self-employed (assuming your NIL income is greater than $400), this may be true for you. Consult with your TurboTax tax expert to help you make the right decision (and discuss how to increase your itemized deductions for next year during your tax planning conversation).
6. Do I have to pay taxes if someone else claims me as a dependent on their tax return?
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Yes. All the answers in this FAQ are true even if someone else (e.g., your parent or other guardian) claims you as a dependent on their tax return.
7. How do I know if I can be claimed as a dependent by someone else, and how does this affect my tax return?
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It is important to know whether you can be claimed as a “dependent” of someone else and correctly indicate your status when you file your return. It is important to get this right on your return for several reasons that can sound pretty complicated, but here are just two:
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It can affect how you and/or the person claiming you as a dependent (e.g., your parents) calculate certain things on your return (e.g., if you are someone else’s dependent then you can’t reduce the amount of tax you may owe by certain things.)
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If you do it wrong, it could create problems for your parents/guardians when they file their return.
If you are a full-time student in 2024, you will qualify as a dependent of your parents/guardians if:
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You were under age 24 on December 31, 2024,
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You lived at school or with your parents/guardians for more than half of the year, and
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You did not provide more than half of your own support for 2024.
You can usually ask your parents/guardians if they can claim you as a dependent. If they aren’t sure, they can use this IRS tool to figure it out: https://www.irs.gov/help/ita/whom-may-i-claim-as-a-dependent.
8. When do I file my tax return?
Federal tax returns are due mid-April following the end of the tax year, on or around April 15th (e.g., 2023 tax returns are due April 15, 2024). However, you may file for an automatic extension to file your tax return in October. The extension is ONLY for the tax return -- you'll still have to pay any additional taxes owed by the April deadline.
To get an extension of time to file your federal tax return, you need to complete a short and simple form (Form 4868). You can file this electronically using one of the free extension filing options listed on the IRS webpage (see https://www.irs.gov/filing/free-file-everyone-can-file-an-extension-for-free) or you can use snail mail to file a hard copy version of the form (see https://www.irs.gov/forms-pubs-search?search=4868).
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9. When do I pay my federal income taxes?
During the year
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If it's NIL income (remember, taxes were not taken out in advance), AND you expect to owe more than $1000 in federal taxes, you must pay an estimate of what you think you owe in taxes every quarter in mid-April, mid-June, mid-Sept, and mid-Jan of the following year . The actual dates vary slightly, so be sure to check the IRS website for that year's due dates. Make sure you set aside sufficient money to make these estimated tax payments and that you make them on time. Do not wait until your tax return is due to figure out how much taxes you owe. If you are required to make quarterly estimated tax payments but instead wait and pay all of your taxes when you file your tax return, the IRS will consider some of your payments late and you may owe interest and penalties in addition to the tax.
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If it's wage income, your employer will pay taxes on your behalf by withholding a portion of your pay every pay period.
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After the year ends
When you file your return you will calculate your total federal income tax for the year and compare this to all payments you have made through estimated tax payments and/or withholding. If you have paid in more than the total tax showing on your tax return, then you will request a refund of this amount. If you have paid in less than the total tax showing on your tax return, then you owe more tax. You will need to pay this additional tax when you file your tax return on or before the due date. You can do this electronically through the IRS’s webpage (same link as above).
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if you need some extra time filing your tax return, you can request an extension until mid-October, but you'll still need to have paid in all of the taxes you owe before the mid-April deadline. You can file this electronically using one of the free extension filing options listed on the IRS webpage.
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10. Do I need to file and pay state and/or local taxes?
Everything mentioned so far relates to federal tax. However, forty-two states and even some municipalities, like New York City, have an income tax. So, depending on the type and amount of your income, you may also need to file and pay state income taxes in any state where you earned income as well as in your home state. That may sound like a lot of state taxes, but your home state may allow you to reduce your taxes (i.e., claim a credit) for any state taxes paid on the same income earned in another state.
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