ACA and the gray market economy

Soccer refereeing is overwhelmingly a gray market economy.  It is a legal enterprise where most low level games are paid in cash at the field.  Minimal records are kept. Higher level games (college, professional, some high school, regional and national level youth tournaments) are paid by check where records are kept for 1099 purposes.  Referees who only work low level games are left to their own conscience and risk tolerance in whether or not to report their incomes for taxation purposes.  Referees who only work high level games have an extensive paper trail that mandates declaring their income.

For my regional USSF group of workhorse referees, I would guess that roughly half the income is declared.  In that group, there are five referees who are trying to make a living as a referee.  Two are doing so because they eventually want to make it to the MLS so they are paying their minor league poverty level dues.  Another is in grad school, and refereeing supplments a very meager stipend, and the last two are twenty two year olds fresh out of college who have not figured out what they want to do but soccer pays the rent and buys them beer so it is a good stop-gap solution.

I’m known as the health insurance/Obamacare guy for the referee group (much like Chuck is the law guy, Nicole is the lower leg atheletic trainer girl, Pat is the life insurance guy etc), so at the last clinic, one of the guys who referees nearly full time pulled me aside and asked for some advice.  We live in a non-expansion state, and he wanted health insurance but his declared 2013 income was $9,500 which is significantly below 100% of the federal poverty line and thus under the subsidy line.  A catastrophic policy was available at $150/month but it covered almost nothing.  Was there anything I could do to help him?

I asked what he was planning on declaring for 2014? He said his college schedule, his USSF pro and semi-pro schedules, one high school district, and a pair of large national tournaments where he made $700-$800 each week.  That summed out to be about $10,000, which again is below 100% of FPL.  I aked him if he worked any other games, knowing that he did as we did a half dozen men’s leagues games together over the summer as well as a great high school game in October.  He accounted for another $4,500 worth of work from USSF and other high school games.  That would place him well over 100% FPL if he declared all of the income, and declaring a little under half of that income would get him over the subsidy hurdle.  I told him it was his choice, but declaring the income and bringing it into the white/overt market instead of the gray market would allow him to get a cost sharing Silver plan for $33 a month.

I think in states which have not expanded Medicaid, there will be an amazing number and proportion of people who will report between 100% and 102% of FPL from previously non-reported income and cash based jobs.  I think in states with Medicaid expansion, the proportion of people who report between 100% and 102% of FPL will be dramatically lower and closer to the true population estimate of those income brackets.  There is a strong incentive at the bottom end of the income scale to transform a bit of the gray market economy to the white market due to the subsidy cliff in non-expansion states.  People will want to report just enough to qualify for Exchange subsidies so they will report just enough to do so.



18 replies
  1. Mudge says:

    Interesting that people could even report phantom income, which they did not earn, but kicks them over the limit.

  2. Richard Mayhew says:

    @Mudge: That is a possibility too… they would be paying taxes on that phantom income, and since it entangles itself with EITC, it really opens someone up to audit… report what you earn is probably the best advice.

  3. Lee says:

    Thanks for an interesting read to start my morning.

    I never thought of the incentives that Obamacare would put on the income reporting market. You really want to report your income right in the sweet spot for Obamacare and have a fairly significant incentive to do so.

  4. Mudge says:

    @Richard Mayhew: Not advising it..of course..but gray money is gray money and probably invisible to an audit whether you earn it or not. Your case had a $150/mo. catastrophic plan becoming a $33/mo silver plan by the addition of about $3000 of income. Extra tax for $12,500 versus $9500 was (with single personal exemption and standard deduction total of $10,000), in 2013, $251. Economical. Raises the silver plan rate to $55 a month by prorating the tax. I have never dipped into EITC and do not know the details.

    But I suspect someone making $12,500 a year has a greater chance of an audit than any of the Walton children….

  5. TerryC says:

    I have a good friend who owns a small business who had been taking almost no revenue out for five years, living lean and reinvesting, the business doing well.

    She paid herself enough this year to qualify for an inexpensive silver plan. Yet another way people are reallocating their funds.

  6. Sherparick says:

    As independent contractors, due you guys pay 12.4% for FICA (Social Security) and 2.9% for Medicare on your reported income? If so, for every $1000.00 reported income, that is $153.00 in taxes, which for approximately $4500.00 is $675.00, and another $400 approximately in costs for the health insurance itself. I don’t think it will cost to much in extra income taxes at this level after applying exemptions and the standard deduction and, if eligible, he may get some of this back in the earned income tax credit, along with the Silver Plan benefits (and he will build up credit and income level in the Social Security Trust.

  7. Violet says:

    Hi, Richard, in a different thread I posted about my experience ending up with two different charges for the exact same procedure at the same imaging facility and the same doctor and the same health insurance policy. I finally tracked down what was going on and am reposting it here to see if I can get your take on the part where the “provider” isn’t the actual provider but turns out to be a middleman processing company and the actual charges are completely obscured. Seems like it shouldn’t be legal. Here’s the part I posted before (sorry it’s long). Thanks for any insight:

    Talked to the insurance company–they couldn’t explain it and said I needed to talk to the imaging center. Talked to the imaging center who said the CPT codes are exactly the same and the amount they billed is exactly the same–$550. That number is nowhere to be found on the Explanation of Benefits. Also, the EOB does not list the imaging company–it lists some other company as the provider. So I had to google to get the number and then call that company.

    Turns out that the company listed as the provider on the EOB is a nothing but a middleman that does billing for radiology and imaging services for the insurance company. They have one contracted rate with the health insurance company to process their claims. They have another contracted rate with the imaging company to provide imaging services. The only benefit they provide is processing paperwork.

    The reason the charges went up is that Middleman Company renegotiated their contracted rate with the health insurance company in September. HOWEVER, they did NOT renegotiate their rate with Imaging Company. So the EOB rate that the health insurance company sent shows the higher rate but Imaging Company is not allowed to charge that amount. They can only charge the contracted rate, which is the lower rate.

    What happens to the money that makes up the difference between the rate Middleman Company pays Imaging Company and the rate they charge the health insurance company? Well, it’s their profit, of course! Apparently it can’t be listed on the EOB because the health insurance company doesn’t know what Middleman Company’s contracted rate is with Imaging Company.

    What a total clusterfuck. And Middleman Company adds value to the process how? They do nothing but make the process opaque. I had no idea who “Middleman Company” was that was listed as the “Provider” on the EOB. And they obscure the actual charges from Imaging Company–it’s not available to the customer without calling Imaging Company’s billing office to ask.

  8. richard mayhew says:

    @Sherparick: yep, we pay FICA taxes (both sides of it) as independent contractors. The marginal number for him to definately get over the FPL barrier would be about $2,000 in additional declarations after deductions for work expenses (uniforms, mileage etc), so the FICA it for him would be about $300, or an additional $25/month, for total Silver costs of $80 before EITC comes into play if it comes into play at all. So he is still saving significant money ($70/month) and has insurance he could actually use.

  9. Chris says:

    I have a friend who is a hairdresser/student. She is in the exact same situation. She works 1-2 days a week cutting hair and gets paid cash and here in NC no medicaid expansion so she was caught in the same trap. So someone just asked her why she didnt report her income to as right about min wage…and she could get subsidies. She got the same silver plan I have AND dental insurance for 43 bucks a month. She nearly started crying when they told her (she actually did all this over the phone with the helpful people).

  10. Yatsuno says:


    Not advising it..of course..but gray money is gray money and probably invisible to an audit whether you earn it or not.

    Not as invisible as you might think. While gray money might be harder to track, the IRS does have forensic accountants that can piece together pieces of information that show income being hidden. Not to mention when it comes time to file, if that income was used for a subsidy declaration, it HAS to be on the return. If it’s not, it will either change or cancel the subsidy. So yes the best thing to do is declare everything especially in this instance.

  11. richard mayhew says:

    @Yatsuno: agreed, the IRS can find a lot of money fairly quickly. At the levels we’re talking about (a couple of grand), the bet is it is not worth their time to do so, but the capability is there. Every couple of years, there is a nasty story about a ref getting audited and then trying to explain where $20,000 in cash deposits came from over three years. Safer to report everything but for the beer one team brews.

  12. gene108 says:


    While gray money might be harder to track, the IRS does have forensic accountants that can piece together pieces of information that show income being hidden.

    My general understanding of what the IRS can do does not allow it differentiate between a person making $10,000 in income versus $14,500 in income.

    Now if a person made $40,000 in income and only declared $10,000, the IRS could probably figure that out.

  13. Gindy51 says:

    @Chris: We did that for my daughter but in Indiana the silver plan she chose is $147 per month after subsidies. If she had left her tip income off, she would have been stuck with Indiana’s lame state health plan. I have no clue where these $43 plans are, they sure didn’t show up on her report.

  14. low-tech cyclist says:

    @Richard Mayhew:

    @Mudge: That is a possibility too… they would be paying taxes on that phantom income, and since it entangles itself with EITC, it really opens someone up to audit… report what you earn is probably the best advice.

    If I was under the poverty line in a no-expansion state, and I claimed a couple thousand of nonexistent income on my 1040 to get to 101% of the poverty line, and claimed it came from mowing lawns or other odd jobs, how would the IRS be able to prove I didn’t actually earn that money?

    I think it would pose a real challenge for them. First of all, they’re set up to look for people understating their income (and overstating deductions), not the other way around. Second, what are they going to do, canvass my neighbors and ask if they’ve hired me to do their lawns?

    There would be a cost to it, though: I’d have to pay $153 of FICA tax for every $1000 of cash income I reported (wouldn’t matter that it was nonexistent). I’d want to call the IRS and find out how to do that. And given our current tax structure, I’d be more worried about having to pay a bit extra in state taxes (if I’m in a state with income tax) than Federal taxes, since >40% of people really don’t pay any Federal income tax.

  15. Freemark says:

    Are the subsidies based on gross or net income. Assuming it is net, can I decide not to take deductions in order to stay above the subsidy line?

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