Can products or services from an NIL deal be taxable?

Many NIL deals do not involve much cash. A brand sends shoes and apparel in exchange for posts. A local business provides meals or a service in exchange for an appearance. A company offers a gift card for a promotion. These deals can feel like perks, but for tax purposes they are usually income.

Why products and services count as income

The IRS defines NIL income as any monetary or financial gain, in cash, property, or services, from a transaction in which you benefit from the use of your name, image, or likeness. It specifically lists non-cash compensation, which it also calls bartering, such as merchandise, gift cards, and services received like haircuts, legal and accounting services, and other personal services.

The NCAA’s definition of an NIL deal also includes compensation in “money, products or services.”

The underlying rule is the same one that applies to any business. The IRS explains in its guidance on bartering that you must include in gross income the fair market value of goods or services received in exchange for goods or services. When you post, appear, or promote in exchange for something of value, you have provided a service and received payment, just not in cash.

How the value is measured

The amount that counts as income is generally the fair market value of what you received: roughly, what it would cost to buy that item or service in an ordinary transaction. For a product with a clear retail price, that is often a reasonable starting point. For services, custom items, or products without a public price, the value can take more judgment.

A few practical points:

• If the agreement states a value for the products or services, save that document.
• If it does not, record what the item sells for, with a screenshot or link, around the date you received it.
• Keep records of the date received, since timing affects which tax year the income belongs to.

Valuation questions can get complicated, especially for high-value items, ongoing use of property, or services that are not normally sold to the public. Those are good questions to bring to a CPA.

How it is usually reported

Non-cash NIL compensation is generally reported the same way as cash from the same arrangement. If you receive products in exchange for promotional services as an independent contractor, that value is generally self-employment income, reported on Schedule C and subject to self-employment tax, just like cash would be. The IRS notes that Form 1099-NEC reporting can include merchandise and services in kind, not only cash.

You may not receive a form at all, particularly for smaller deals or products. That does not change the result. The IRS states that you must report all NIL income even if the payer does not issue a Form 1099 or W-2.

The cash flow problem

This is the part that catches athletes off guard. A deal paid entirely in products can create a tax bill, and the tax has to be paid in cash. If you received several thousand dollars of merchandise over the year and no cash, you may still owe income tax and self-employment tax on that value.

Planning for this is straightforward once you know to do it:

• Track the value of products and services as they arrive.
• Include that value when estimating taxes during the year.
• Set aside cash from other NIL payments, or other income, to cover the tax.
• Think about whether a product-only deal is worth it to you after tax. Sometimes it is. Sometimes it is not.

Gifts, prizes, and other gray areas

Not everything you receive is automatically NIL income, and not everything described as a gift is free of tax. The IRS includes gifts and giveaways, such as gift cards, in its list of NIL income sources. What matters is why you received it. If something of value was given because of, or in exchange for, the use of your name, image, or likeness, treat it as potentially taxable and write it down. If you are unsure, record it anyway and ask. It is much easier to decide how to treat an item when there is a record of it.

Items your school provides as part of your participation in athletics are a separate subject, governed by NCAA, conference, and school rules as well as tax rules. Ask your compliance office about the athletic side and a tax professional about the tax side.

What to keep

For each non-cash item or service you receive for NIL activity, keep:

• The agreement or message describing what you agreed to do
• What you received and when
• Evidence of value, such as a stated value, invoice, or retail listing
• Proof you completed the promotional work, such as links to posts or event details

Our recordkeeping guide covers the rest of a simple NIL record system.

When to get individual advice

Talk with a CPA before accepting or while tracking deals that involve high-value products, vehicles or other property you use over time, services such as travel, or a mix of cash and non-cash compensation. Those situations raise valuation and timing questions that general rules do not answer well.