S-Corp Election for NIL Athletes: How to Stop Overpaying Self-Employment Tax

Jesstine Kemper |

First: What Is an S-Corp?

An S-Corp is a federal tax classification. When you elect S-Corp status, your LLC still remains yours, you're just telling the IRS to tax it differently.

By default, when you’re the owner of an LLC, your net business earnings are subject to self-employment tax. That means the IRS charges self-employment (SE) tax on every dollar of it. That's 15.3% on top of your regular income tax. Social Security has an annual earnings limit, and additional medicare tax can apply at higher income levels.

The S-Corp election changes the math.

How the S-Corp Election Works

With S-Corp status, your income becomes split into two different forms:

  • Salary - You pay yourself through payroll (subject to SE tax from you as the employer and the employee)
  • Distributions - remainder of profits may be distributed to you (not subject to the employer side of SE tax, still subject to the employee side of the SE tax)

The IRS requires you pay yourself "reasonable compensation" for your work. But everything above that reasonable salary can be taken as a distribution for yourself, and it doesn't get hit with the 15.3% self-employment tax.

That difference is your savings.

The Math: A Real Example

Consider an athlete who acquired $120,000 in NIL income this year.

Without S-Corp election:

  • All $120,000 is subject to SE tax
  • SE tax: ~$18,360

With S-Corp election:

  • You pay yourself a $50,000 salary (SE tax of ~15.3%) 
    • SE tax on salary: ~$7,650
  • Remaining $70,000 taken as a distribution (SE tax of ~7.65%)
    • SE tax on distribution ~$5,355
  • Total SE tax: ~$13,005

Estimated annual savings: ~$5,355

The higher your income, the larger the savings. At $200,000+ in NIL income, an S-Corp election can save you $15,000–$25,000 per year.

When Does It Make Sense?

The S-Corp election comes with some added complexity -  payroll, W-2s, and administrative costs. The question is whether your expected tax savings would outweigh the addend costs and responsibilities

A general guideline: if your NIL self-employment income is consistently above $50,000–$60,000 per year, the S-Corp election is worth looking into. Below that amount, the administrative cost often erases the tax savings.

Note: these thresholds vary based on your situation. This is a general assessment, not personalized advice - always work with your advisor and CPA to run your specific numbers.

What You Need Before You Elect

To achieve S-Corp status, a few things need to be in place:

  • An LLC: You need a business entity to attach the S-Corp election to. If you don't have one yet, that comes first.
  • A reasonable salary plan: You and your CPA determine what a reasonable salary looks like for your level of work.
  • Payroll setup: As an S-Corp, you'll need to run payroll to pay yourself salary, withhold taxes, and issue yourself a W-2 at year end. There are platforms you can use to set this up, like Surepayroll. 
  • A CPA familiar with athlete income: S-Corp compliance has moving parts. You want someone who understands how NIL income flows and can guide you in the right direction of IRS requirements.

One More Thing: The Solo 401(k) Still Works

One common question we get: does the S-Corp election affect my Solo 401(k)? No it doesn’t, as an S-Corp, your W-2 salary becomes the basis for your Solo 401(k) employee contribution and the employer contribution is based on that salary. The numbers may shift slightly, but the account still works,  and the combination of S-Corp savings and maxed Solo 401(k) contributions is one of the most powerful strategies available to NIL athletes.

The Bottom Line

The S-Corp election isn't for every athlete. But if you're earning real NIL income and you're paying SE tax on every dollar of it, you're likely overpaying. For the right athlete at the right income level, this single move can save thousands per year - and over a 4-year college career, that compounds into something significant.

IroncladNIL helps athletes evaluate whether an S-Corp election makes sense for their situation and coordinates with your CPA to implement it if it does. Book a free call → www.ironcladnil.com

Investment advisory services offered through Mutual Advisors LLC DBA IroncladNIL, an SEC registered investment adviser. Securities offered through Mutual Securities, Inc., Member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. IroncladNIL, nor any of its members, are tax accountants or legal attorneys, and do not provide tax or legal advice. For advice tailored to your situation, please consult your tax or legal professional.