March Madness: Lower-tax states offer savings for NIL athletes

Ahead of March Madness, some of the highest-earning college basketball players will pay less in state income tax than they would in Illinois.

March Madness is a reminder that college basketball players need to pay taxes on their name, image and likeness income.

States with no income tax, such as Florida and Texas, have an advantage in attracting players, and last year Arkansas enacted a law exempting college athletes from the state’s flat income tax on NIL money they get directly from universities.

Based on data from Forbes, almost all the 10 highest-earning NIL basketball players would have had to pay more state income tax if they went to school in Illinois.

The IRS considers all NIL income taxable. Student-athletes must report the income as independent contractors.

Because of uncertainty around state laws and NCAA enforcement, some student-athletes could have to file taxes in multiple states if they transfer or go to school in a different state from where they live.

For those receiving direct payments, some up to $6.8 million annually, a big tax bill is a possibility in some states.

Lawmakers in eight states have considered creating tax incentives for athletes’ NIL earnings. College athletes aren’t the only ones who would benefit from such moves.

Based on IRS tax return data, when people move to a new state, odds are they choose one with no state income tax.

Gaining people helps a state’s economy, providing more talent for its businesses. If state lawmakers want to stop the outmigration trend, they need to stop relying on more revenue from residents.