Is Hobby Income Allowed On Visa for international students? Yes, international students on F or J visas can earn hobby income in the U.S., but it’s crucial to understand the IRS guidelines and potential visa implications with the help of Income-partners.net. Understanding the distinction between a hobby and a business is essential to avoid violating visa terms. To ensure compliance, explore partnership opportunities that align with your visa status and maximize your earning potential, visit income-partners.net for expert guidance and resources, focusing on passive income streams, investment income, and royalty income.
1. Understanding NIL (Name, Image, Likeness)
The NCAA’s previous regulations restricted athletes from profiting from their name, image, and likeness.
However, changes to NCAA Name Image Likeness (NIL) rules now allow students to leverage their athlete status to promote appearances or companies, opening doors for monetization.
2. Navigating NIL Tax Implications
NIL earnings are taxable income according to the IRS and must be reported. It is important for individuals to report it on their tax returns.
Whether it’s sponsorships, social media partnerships, or other brand collaborations, NIL income is subject to federal income tax, and possibly state taxes depending on the state.
Staying compliant and minimizing tax liability is crucial as NIL income becomes a significant part of an athlete’s financial portfolio.
3. Exploring Income-Generating Activities for Athletes
The new NCAA rules open doors to a wide array of income-generating activities for student-athletes.
This could include receiving smaller amounts of money, gifts or free meals in exchange for the promotion of a local business.
Athletes can appear in national advertising campaigns; partner with brands to advertise through social media channels; start their own youth sports camps or teach lessons; launch their own businesses; sell memorabilia; make paid public appearances for speaking events or autograph signings, and use their NIL rights in a variety of other creative ways.
While colleges will not be able to pay their athletes directly to play sports, schools are entitled to offer additional education-related perks — such as scholarships for graduate school, internships or computer equipment.
4. How NCAA Rule Changes Impact International Students and Nonresidents
International student-athletes make up a substantial portion of NCAA athletes.
The new regulations do not specify which types of student-athletes are entitled to earn income.
However, earning income might not be as straightforward for nonresident athletes.
The first factor that international students must keep in mind is their visa.
Remember, in order to qualify for an F-1 visa, a student must agree that they will only pursue one of three types of off campus employment:
- Curricular Practical Training (CPT)
- Optional Practical Training (OPT)
- Science, Technology, Engineering, and Mathematics Optional Practical Training Extension
What’s more, all work undertaken by F-1 students must be related to their area of study and must be authorized by their school before they can start to earn an income.
Importantly, an F-1 visa does not specifically authorize international student-athletes to enter into endorsement agreements to secure remuneration for their name, image, and likeness.
Should a student violate these regulations, they will no longer be in compliance with the terms of their visa.
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5. Advising Nonresident Students: A School’s Role
Schools play a vital role in advising their nonresident students on NIL income, considering both visa regulations and NCAA rules. Trisha Chaparala Iyonsi, International Employment and Tax Coordinator at Oklahoma State University, highlights the complexity of the situation.
Schools should keep open communication lines with compliance officials and legal counsel for their Athletics department.
As unauthorized employment is prohibited for international students, schools need to properly define what constitutes ‘employment’ before they can advise their nonresidents.
In some situations, it may be advisable to seek advice from United States Citizenship and Immigration Services (USCIS) or the Department of State on the matter before the nonresident begins to accept NIL income.
“One of the common types of NIL income opportunities that will be available to athletes will be accepting money to sign autographs,” says Iyonsi. “For example, let’s say a car dealership asks a college football player to appear in their store to sign autographs for customers. If the athlete accepts money for this service, I think it is likely that this would be viewed as unauthorized employment.”
“However, it is also important to acknowledge that the student athlete has to be responsible for the decisions that they make.”
6. Taxability of NIL Money for International Students
Certain types of income, such as scholarship and income from OPT and CPT, are permissible for international students. Any income earned from prize money is also acceptable, but it is taxable at 30%.
Iyonsi told Sprintax that schools will also need to advise their students on whether they should accept income from royalties.
“I know that some PHD students publish books and receive royalties. This income is usually fine.”
“But what if a student’s face is used in a video game? Can they accept royalties for this? There are many grey areas like this that we are still waiting for clarification on.”
“This is why it can be challenging to properly advise nonresident student athletes.”
7. Active vs. Passive Income: Understanding the Difference
The IRS categorizes income into active and passive, and this distinction is vital for international students on F or J visas. Work generates ‘active’ income and not ‘passive’ income.
The IRS considers ‘work’ to be any arrangement that results in the payment of wages, salary or other compensation in exchange for services rendered.
Passive income is income that is not effectively connected with the conduct of a US trade or business.
There is no limit on the amount of passive income that nonresidents on F or J visas can earn while in the US.
However, it is important to keep in mind that F and J visa holders are not entitled to trade actively or be considered professionals.
If you do trade professionally, this may be considered as work (effectively connected with the conduct of a US trade or business) and a violation of visa conditions.
8. Three Main Categories of Income
According to the IRS, here are the main categories of income:
| Income Type | Description | Examples |
|---|---|---|
| Active Income (Work) | Income received for performing a service. Self-employment or anyone with ownership interest in a business if it meets the IRS definition of material participation is also considered active income. Creating a product, media content, materials, or services with an intent to produce active income at a later time can also be seen as ‘work’. | Wages, tips, salaries, commissions, income from businesses in which there is material participation. |
| Passive Income | This is income from a business in which the taxpayer does not materially participate. | Rental property, limited partnership, royalties, savings account interest, other business without active involvement (aka silent investor) |
| Portfolio Income | Money received from investments | Investments, dividends (not Passive), qualified dividends, interest, capital gains, royalties from investment property |
Note: Students will need to know which tax forms are generated for each income type.
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9. Understanding the Material Participation Test
Material participation tests are a set of Internal Revenue Services (IRS) criteria which help to determine whether a taxpayer has materially participated in business, rental, or other income-producing activity.
Any passive activity you perform to earn passive income is no longer considered passive income if participation is considered “Material” by the activity meeting any one of the following criteria:
- Activity for more than 500 hours during the year
- Activity constitutes substantially all of the participation by all individuals (including non-owners) in the activity for the year
- Activity takes more than 100 hours during the year, and other individuals (including non-owners) participate less than the total number
- Activity is more than 100 hours during the year and the taxpayer’s annual participation in all significant participation activities is more than 500 hours
- Materially participated in the activity for any five years (whether or not consecutive) during the 10 immediately preceding tax years
- For a personal service activity, the taxpayer materially participated for any three tax years (whether or not consecutive) preceding the current tax year, or
- Based on all the facts and circumstances, participation is on a regular, continuous, and substantial basis during the year
10. Earning NIL Income from Outside the U.S.
F-1 regulations can only be enforced when the student is on US soil.
If it is a US company paying for services while the student is abroad, it would be on that US company to examine whether they will allow this and what foreign tax implications they must follow.
However, the student would need to be very careful and cease all employment once returning to the US.
They must also make it clear to the company that these services were performed abroad. It would not be good if the company erroneously issued a W-2 or 1099 when the work was foreign sourced.
Finally, nonresident students must remember that they can’t work for a foreign based company while in the US.
The employment regulations in the US are based on the physical location of the employee and not the country of the company.
11. Hobby Income: Is Sport a Hobby?
Millions of people enjoy hobbies that are also a source of income. Sports scholars are no different.
In fact, many sports scholars began playing their chosen sport as a hobby when they were a child. But at what point does the IRS stop considering a sport to be a hobby?
In short, the IRS defines a hobby as any activity undertaken for pleasure rather than for profit.
Taxpayers must report income earned from hobbies on their tax return. The rules for how to report the income and expenses depend on whether the activity is a hobby or a business.
Is it a business or a hobby?
While people usually engage in a hobby for sport or recreation – and not to make a profit – a key feature of a business is that people do it to make a profit.
In order to determine whether an activity is a hobby, you must consider the nine factors below. No one factor alone is decisive.
You must generally consider these factors in determining whether an activity is a business engaged in making a profit:
- Whether you carry on the activity in a business-like manner and maintain complete and accurate books and records
- Whether you have personal motives in carrying on the activity
- Whether the time and effort you put into the activity indicate you intend to make it profitable
- Whether you depend on income from the activity for your livelihood
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business)
- Whether you or your advisors have the knowledge needed to carry on the activity as a successful business
- Whether you were successful in making a profit in similar activities in the past
- Whether the activity makes a profit in some years and how much profit it makes
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity
International students who are in the US on a F or J visa status must be careful when earning income from hobbies.
The Department of Homeland Security could consider this to be income from ‘work’ and in violation of the terms of their visa. Nonresidents should seek the proper permissions before earning a profit from their hobby.
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12. Can Student-Athletes Receive Direct Payments from Schools for NIL?
Currently, NCAA rules prevent schools from directly paying athletes for their name, image, and likeness.
The new law does not prohibit the payment of athletes by schools – this rule is enforced only by the NCAA.
The situation remains fluid. It will be interesting to see whether the NCAA adapts this rule as each state begins to implement the new laws through their own legislation.
13. Can Schools Arrange NIL Opportunities for Athletes?
Some state laws restrict schools from arranging deals for their athletes. The NCAA rules leave that decision up to individual schools.
However, schools must tread carefully and ensure that they don’t do anything which could be considered paying the players or using NIL payments as a recruiting tool.
14. Restrictions on How College Athletes Can Make Money
Yes – although this can depend on the state or school where the student resides.
For example, in some locations, athletes are not entitled to endorse alcohol, tobacco or gambling products. Others have some restrictions on whether college athletes are allowed to use school logos and other copyright material in any paid opportunities. Most states and schools also prohibit athletes from signing any deals that conflict with the school’s sponsorship agreements.
For example, a basketball player on a team sponsored by one brand would not be allowed to wear the shoes of a rival brand during games. However, in most cases, that athlete could promote whichever brand of sports apparel they prefer during times when they are not playing games or participating in other team activities.
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15. When Can Student-Athletes Start Earning from NIL?
Right now
In December 2020, Aquinas College volleyball player Chloe Mitchell became the first college athlete to profit off her NIL. Mitchell became famous on TikTok and started signing endorsement deals. When NIL rules took effect in the NAIA, she was able to continue making money.
16. Hiring Agents to Organize Income
Yes.
Athletes are entitled to hire professional help in the form of lawyers, agents, tax professionals and others.
However, while agents can help student athletes with NIL deals, their contracts can’t specifically stipulate that the agent would represent the college athlete in future negotiations should they turn professional.
17. Reporting NIL Income to School
Simply put, NIL policy for college athletes depends on the state in which the student is attending the school.
Most state laws indicate that athletes need to share details of any potential NIL deals with the school within a particular time frame. There are, however, some states where this is not a requirement.
NCAA rules do not require students to report this income to their school.
18. Managing Payments to Nonresident College Athletes
In general, there should be no change for schools in relation to the taxation of scholarships or other income paid to athletes.
While the NCAA rule changes are significant, as we mentioned above, they do currently stipulate that ‘at no point should a university or college pay student-athletes for name, image and likeness activities.’
However, should the situation change, and schools be permitted to pay athletes for NIL, such payments should be treated as independent services, royalties and business income etc and taxed as usual.
19. Future of NIL Rules for International Student-Athletes
It’s unknown whether the United States Citizenship and Immigration Services (USCIS) or the State Department will make changes to the rules to enable nonresidents to earn this income.
Iyonsi, however, believes that the new rules, as they currently stand, could act as a deterrent to international student athletes.
“Every year we have had more and more international athletes. However, I worry that this could hurt the recruitment of nonresident athletes.
“I worry that new students might think ‘well why would I go there? I can’t even make money like my American counterparts.”
Is it really possible that a US sports scholarship will become a less attractive offering for international athletes? Or can the USCIS find a way around these rules – ensuring that nonresidents will have the same right to benefit from NIL income as their US-born teammates.
The NCAA’s response to these issues and the long-term implications for nonresident student athletes will be fascinating.
Watch this space.
FAQ Section
1. Can international students on an F-1 visa earn income from hobbies in the U.S.?
Yes, international students on an F-1 visa can earn income from hobbies, but it is important to ensure that the activity is genuinely a hobby and not considered employment, which could violate visa terms.
2. What is the difference between a hobby and a business according to the IRS?
The IRS defines a hobby as an activity undertaken for pleasure rather than profit, while a business is carried out with the intention of making a profit. Factors such as maintaining accurate records, the time and effort invested, and the expectation of future profits are considered.
3. How can international students ensure their hobby doesn’t violate their visa status?
International students should seek guidance from their school’s international student services and possibly consult with an immigration attorney to ensure their activities align with their visa regulations, especially regarding employment restrictions.
4. What types of income are generally permissible for international students on an F-1 visa?
Permissible income typically includes scholarships, income from Curricular Practical Training (CPT), Optional Practical Training (OPT), and certain types of passive income, such as interest from savings accounts.
5. Can international student-athletes earn money from their Name, Image, and Likeness (NIL)?
International student-athletes can potentially earn money from NIL, but they need to be cautious to ensure that these activities do not violate their visa status, as endorsement agreements might be considered unauthorized employment.
6. What is considered active income vs. passive income for international students?
Active income is earned through work or services rendered, such as wages, salaries, and commissions. Passive income is earned from activities where the individual does not materially participate, such as rental property or royalties.
7. Can international students earn NIL income from outside the U.S. while on an F-1 visa?
Yes, international students can earn NIL income from services performed outside the U.S. However, they must ensure that they cease all employment once they return to the U.S. and clearly document that the services were performed abroad.
8. How do NCAA rule changes affect international student-athletes regarding NIL income?
While the NCAA rule changes allow student-athletes to earn income from NIL, international students must still comply with their visa regulations, which may restrict their ability to engage in certain income-generating activities.
9. What role do schools play in advising international student-athletes on NIL income?
Schools play a crucial role in advising international student-athletes on NIL income, helping them understand the intersection of NCAA rules and visa regulations. They often provide resources and guidance to ensure students remain compliant.
10. Are there any restrictions on the types of endorsements international student-athletes can engage in?
Yes, there may be restrictions on the types of endorsements international student-athletes can engage in, depending on state laws, school policies, and visa regulations. Some common restrictions include endorsements of alcohol, tobacco, or gambling products.
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