Special Article
1099 Fundamentals For The Umpire
By Rick McIntosh
Some of you know that I volunteer for the AARP Tax-Aide program. I have been with them for 17 years as a tax counselor and now as site leader for the Manassas (Bull Run) site.
Over the course of the past few seasons in many pre and post-game discussions, I realized that there are some areas of tax knowledge that I might be able to provide some assistance, especially with some little known areas. To be clear, I am not a CPA nor have worked as a professional tax preparer. But in the course of 17 years, I have either prepared or reviewed well over 2,000 tax returns so there’s little I have not seen. This information presented below is meant to increase awareness and is not intended to be specific tax advice. You should check with your tax advisor for how these topics affect your personal situation.
Taxes and umpire pay
I think a good place to start is to understand that as an umpire, you are a small business owner. You own an umpiring business whose goal is to grow revenue (game fees) in order to increase profit (net take-home pay). Although you may think that umpiring is just a hobby, it meets enough qualifying criteria to be considered a business.
Unless you have chosen to operate under a different business entity, you operate as a sole proprietor, aka independent contractor. Since our pay is run through Arbiter, it is reported to the IRS on a 1099-K which you then report on a Schedule C, which in turn feeds your 1040. Remember that money you receive from cash games is also reportable income on the Schedule C.
Depending on your other income, you will pay between 0% to 25%, maybe more in income tax and about 15% in self-employment tax. So, for example, if your marginal rate is 15%, your total tax owed including 15% self-employment tax (FICA/Medicare) on net income of say $10,000 is $3,000. Arbiter doesn’t routinely take federal or state withholding but you might work out something with their payment support team.
One of the benefits of being a small business is that you can offset some of your income with qualified business expenses. I have run across many self-employed persons who didn’t know they could deduct expenses. One of the key areas to remember is that the expense must be directly related to your umpiring business. Typical ones that we all can deduct are association and state fees, expenses paid for camps and clinics, all of your umpiring clothing and equipment, and vehicle miles to and from games. Keep in mind that mileage to a game from your normal workplace is limited to just the distance from work to game and return. It’s a good best practice to keep good records in case anyone ever comes asking questions. I keep mine in Excel but a notebook would work, as long as you have a record.
One great benefit as a business owner is the ability to deduct expenses under the business for Self-Employed Health Insurance (SEHI). The SEHI is taken as an Adjustment on the 1040. Allowable expenses you can deduct include any health insurance that is not subsidized by an employer and is paid with after-tax dollars such as Medicare, dental/vision insurance, long-term care insurance and young adult insurance. You can actually include health insurance costs for any member of your household, not just you. So, for example, if you are old enough to have Medicare, you deduct your spouse’s payments as well as yours. Keep in mind that SEHI is for insurance only and does not include payments made to doctors, co-pays, expenses to purchase glasses, etc. The SEHI can be very powerful. Personally, I have enough health insurance expenses to completely offset my income so my baseball pay is essentially income-tax free.
It’s possible that you run into a snafu with reported 1099 income. I spoke to a fellow umpire earlier this year who had received a 1099-NEC from a different association. That, by itself is not an issue as it can be simply consolidated with other income on the Schedule C. The problem was that the association also paid out through Arbiter so this income was doubly reported to the IRS. There are now the means to fix this sort of thing on the 1040. Each tax preparation software package will likely handle the steps a bit differently so you’ll need to check on how yours does it.
A good practice early in the year is to estimate the tax impact of your expected pay and implement a strategy to withhold enough to cover the tax liability. The best solution will be different for everyone, based on your total income and whether you are still working or taking distributions from an IRA/401k. The conventional method is to cover the tax impact by making quarterly estimated payments to both IRS and VA or MD.
Optionally, if you are still working, you can increase your withholdings from your pay or if taking IRA/401k distributions, increase the tax amount withheld. Or, you could just take care of the taxes due at tax prep time and endure the impact. One downside to this last option is you run the risk of paying an additional under-payment penalty to either the IRS or your state or both.
Miscellaneous items not related to umpire pay but applicable for some
- Starting in tax year 2022, Virginia allows a reduction for retired military pay. It started as $10,000 in TY 2022, increased to $20K in TY23, $30K in TY24, and will increase to $40K for next year where it will stay at that amount for now. It is taken as a Subtraction on the Virginia Form 760. This can be quite powerful too; if you have at least $17,000 of income and therefore in the 5.75% tax bracket, every $10K you can reduce your Virginia taxable income is worth $575. So, if you have enough retired pay to be able to subtract the entire $40K next year, that will be worth $2,300 real money saved. This is also available to divorced and surviving spouses receiving retired pay from the original servicemember due to divorce or death.
- If you are a retired Federal or local public service officer (PSO) – fireman, police officer, EMT or other law enforcement official, you can reduce (exclude is the official term used) the taxable amount of your 1099-R by $3,000 for qualifying health insurance. You cannot claim the same expense as a PSO exclusion as you may have claimed as a SEHI deduction.
- If you or your spouse are educators that meet certain minimum work requirements, you can deduct up to $300 as a federal Adjustment for educator expenses on the 1040 and an additional $500 of expenses on the Virginia return as a Deduction.
- If you made any contributions to a Virginia 529 college savings plan, you can deduct up to $4,000 per contract per year on the Virginia return as a Deduction. Any contributions in excess of $4,000 can be claimed in future years.
AARP Tax-Aide
The AARP Tax-Aide program is an IRS sponsored program, just celebrating our 50th anniversary. It was originally intended for low-income and the elderly but now we have no income limits or age threshold although there are some limits on our scope of service. It provides free tax preparation including free federal and state e-filing and staffed by trained and IRS-certified volunteers.
Here is a link to all the sites in northern Virginia although they exist in every state. https://www.novataxaide.org/home. This is a free service, volunteers receive no compensation, and MAC-NVBUA does not endorse Tax-Aide as a tax preparation provider.
By the way, we are always looking for more tax counselors, so if you are interested and have some time to fill outside of baseball, let me know.