Can I Be Claimed as a Dependent While Earning NIL Income?

Taxes

College athletes scored a win in 2021 when the NCAA changed its policy, granting student-athletes the right to profit from their name, image, and likeness (NIL). But can you still be claimed as a dependent if you earn NIL compensation?

We’ve gathered some basic questions about NIL and how it could affect your taxes and dependency status below.

Do I need to file a tax return if I earn NIL income?

Yes, you must file a tax return if you earn at least $400 in NIL compensation.

If you’re earning compensation from NIL deals, the IRS considers you an independent contractor, meaning you are self-employed. Any NIL compensation you receive will be reported to you on Form 1099-NEC or Form 1099-K. When you file your federal income tax return, you’ll report any self-employment income and losses on Schedule C.

For more detailed info on what counts as taxable NIL income and how to appropriately file your taxes, check out Tax Tips for College Athletes and The Tax Reality of NIL Income.

Can my parents still claim me as a dependent if I earn income from NIL?

Yes, if you meet certain IRS conditions. Your parent(s) or legal guardian can still claim you as a dependent on their tax return, provided you meet the following requirements:

  • You are a full-time college student.
  • You are under 24 years old.
  • You rely on your parent or guardian for at least half of your financial support.
  • You are not filing a joint return with a spouse.

As an example, let’s say Aaron is a 21-year-old full-time scholarship student who plays college football. He earns some side income from NIL deals — but not enough to comfortably provide for himself. Instead, he relies on scholarship money and his parents, who cover more than half of his financial expenses.

In the above example, Aaron’s parents still provide most of his financial support. Any nontaxable scholarships Aaron receives also do not count as his own support. Because of this, Aaron’s parents meet the IRS support test and can claim him as a dependent on their tax return.

Now, for a different example, let’s say Aaron makes $50,000 in NIL income. He requires about $35,000 in annual living expenses, and his parents contribute $20,000 to his living expenses during the year. While Aaron’s parents paid for more than half of his yearly living expenses, Aaron cannot be considered a dependent on their tax return because he earned enough to provide for more than half of his own financial support.

Can I still deduct NIL expenses on my income tax return as a dependent?

Yes, you can still deduct unreimbursed NIL-related expenses on your tax return if your parents claim you as a dependent. Travel expenses, mileage, meal costs, internet and phone fees, and advertising costs are all examples of tax-deductible expenses for student-athletes earning NIL compensation.

Do I qualify for educational tax breaks as a dependent?

Educational tax breaks like the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC) are available to students or parents paying for higher education.

As a student, you can only claim one of these credits if you are not considered a dependent on someone else’s return. If your parent or guardian claims you as a dependent, you would not be able to claim the AOTC or LLC (but your parent or guardian may be able to).

I don’t qualify as a dependent, but my parents claimed me anyway. What should I do?

If you do not believe you qualify as a dependent, but your parent(s) claimed you as one, the person who claimed you must file an amended return to correct the error.

As with most things, proactive communication is key! Try setting a reminder to chat with your parents about your dependency status before tax season rolls around — this simple act can save you a lot of headaches down the road.

When you know you don’t qualify as a dependent, it can be helpful to file early — if you file your tax return first and claim yourself, anyone else trying to claim you as a dependent afterward will likely have their return rejected. Remember to chat with your parents beforehand to prevent any misunderstandings before filing.

This article is for informational purposes only and not legal or financial advice.