PiggyMoney & Tax Glossary
Every term our calculators use, explained without jargon — and linked to the tool that does the arithmetic for you.
4% rule
A retirement planning guideline: withdrawing 4% of your portfolio in the first year, adjusted for inflation thereafter, has historically lasted 30 years. Equivalently, you need about 25 times your annual spending. Calculate it →
Adjusted gross income (AGI)
Your total income minus certain adjustments — for the self-employed, most importantly half of your self-employment tax, plus deductible health insurance and retirement contributions. AGI is the figure most deductions and credits are measured against, which is why lowering it is worth more than it looks. Calculate it →
Amortization
The process of paying off a loan through fixed payments that cover interest first and principal second. Early payments are mostly interest; later ones are mostly principal. The split at any point is shown in an amortization schedule. Calculate it →
Annual percentage rate (APR)
The yearly cost of borrowing including mandatory fees, not just the interest rate. Always compare loan offers on APR — a 6.9% rate with a 5% origination fee costs more than an 8.5% loan with none. Calculate it →
Billable hours
The hours a client actually pays for, as opposed to the hours you work. Marketing, admin, invoicing and unsuccessful proposals are all real work that no client funds. Most full-time freelancers bill 20–30 hours in a 40-hour week. Calculate it →
Business-use percentage
The share of a mixed personal-and-business asset that counts as business. For a home office it is office area divided by total home area; for a phone it is business minutes divided by total. Only that share is deductible. Calculate it →
Compound interest
Interest earned on both your original balance and on interest already earned. Over long periods it dominates returns — which is why the gap between what you deposit and what you end up with widens every year. Calculate it →
Depreciation
Deducting the cost of a long-lived business asset over several years rather than all at once. Section 179 and bonus depreciation let many small businesses deduct the full cost immediately instead.
Effective tax rate
Total tax divided by total income — what you actually pay on average. Always lower than your marginal rate, because only your last dollars are taxed at the top bracket. Calculate it →
Escrow
An account your mortgage servicer uses to collect property tax and insurance alongside your payment, then pays those bills on your behalf. It is why a quoted mortgage payment is often larger than principal and interest alone. Calculate it →
Estimated tax
Tax paid in four instalments during the year by people whose income is not subject to withholding. Freelancers use Form 1040-ES. Skipping payments triggers an underpayment penalty even if you settle up in April. Calculate it →
FICA
Federal Insurance Contributions Act — the payroll taxes funding Social Security and Medicare. Employees and employers each pay 7.65%; the self-employed pay both halves as self-employment tax. Calculate it →
Form 1040-ES
The IRS voucher and worksheet used to calculate and pay quarterly estimated tax. You do not have to mail it — IRS Direct Pay achieves the same thing electronically and gives you a confirmation number. Calculate it →
Form 1099-K
Issued by payment platforms and marketplaces when your receipts pass a reporting threshold — for 2026, over $20,000 and over 200 transactions federally, with nine states requiring far less. It reports gross payments before fees and refunds. Calculate it →
Form 1099-NEC
Issued by a client who paid you $2,000 or more for services in 2026 (raised from $600). Income below the threshold is equally taxable — the form governs the client's paperwork, not your obligation. Calculate it →
Gross vs net income
Gross is everything you received; net is what remains after business expenses. Tax applies to net, which is why tracking expenses matters more than most freelancers assume — each deductible dollar saves roughly 14 cents of self-employment tax before income tax is even counted. Calculate it →
Home office deduction
A deduction for space used regularly and exclusively for business. The simplified method pays $5 per square foot up to 300 square feet; the actual method deducts your business-use share of real housing costs, usually for more. Calculate it →
Loan-to-value (LTV)
The loan balance as a percentage of the property's value. Above 80% LTV lenders generally require private mortgage insurance; it is cancellable at 80% on request and terminates automatically at 78%. Calculate it →
Marginal tax rate
The rate applied to your next dollar of income — your top bracket. Useful for deciding whether extra income or an extra deduction is worthwhile, but it is not what you pay on your income as a whole. Calculate it →
Medicare tax
2.9% of net self-employment earnings, with no upper limit, plus an additional 0.9% above $200,000 ($250,000 filing jointly). Unlike Social Security tax, it never stops as income rises. Calculate it →
Net earnings from self-employment
92.35% of your net business profit — the base that self-employment tax is actually charged on. The 7.65% haircut mirrors the employer payroll tax that an employee never pays tax on. Calculate it →
Ordinary annuity
A series of equal payments made at the end of each period. Most savings and loan calculations assume this pattern, which is why a deposit made on the last day of the month earns no interest that month. Calculate it →
Principal
The amount borrowed or invested, separate from interest. On a loan, the principal portion of each payment is what actually reduces your balance. Calculate it →
Private mortgage insurance (PMI)
Insurance protecting the lender, not you, typically required when a down payment is under 20%. It usually costs 0.5%–1.5% of the loan a year and disappears once you reach sufficient equity. Calculate it →
Qualified business income (QBI) deduction
A deduction of up to 20% of business profit under Section 199A. It is limited to the lesser of 20% of QBI and 20% of taxable income — the second limit bites at lower incomes and is the detail most quick estimates miss. Calculate it →
Safe harbor
The rule that protects you from an underpayment penalty: pay at least 90% of this year's tax, or 100% of last year's (110% if your prior-year AGI exceeded $150,000). Meet either and you are safe even if you owe more in April. Calculate it →
Schedule C
The form where sole proprietors and single-member LLCs report business income and expenses. Your profit from Schedule C flows into both Schedule SE and your Form 1040. Calculate it →
Schedule SE
The form that computes self-employment tax from your Schedule C profit, and produces the deductible half you claim against income tax. Calculate it →
Self-employment tax
15.3% — 12.4% Social Security plus 2.9% Medicare — charged on 92.35% of net profit. It replaces the payroll tax an employer would otherwise split with you, and sits on top of income tax. Calculate it →
SEP-IRA
A retirement account for the self-employed allowing contributions far above a standard IRA. Simple to open and administer, but contributions are a straight percentage of profit with no employee-style salary deferral.
Solo 401(k)
A retirement plan for a business with no employees other than a spouse. It combines an employee deferral with an employer contribution, so it usually allows a larger contribution than a SEP-IRA at the same profit level.
Standard deduction
A flat amount subtracted from income before tax is calculated — $16,100 single and $32,200 married filing jointly for 2026. You take it instead of itemising, and most filers are better off with it. Calculate it →
Taxable income
What remains after subtracting the standard or itemised deduction and the QBI deduction from your AGI. This, not your revenue, is the figure the tax brackets are applied to. Calculate it →
Underpayment penalty
An interest-like charge for paying too little estimated tax during the year. It accrues daily from each missed due date, so paying late costs far less than not paying at all. Calculate it →
W-2 vs 1099
A W-2 marks employment, where the employer withholds tax and pays half your payroll tax. A 1099 marks contract work, where you handle both. The distinction is set by how the work is controlled, not by what the contract calls you. Calculate it →
Withholding
Tax deducted from a paycheque by an employer and sent to the IRS on your behalf. Freelancers have none, which is why quarterly estimated payments exist. Calculate it →
Write-off
Informal term for a deductible business expense. It reduces your taxable profit, not your tax bill directly — a $1,000 write-off saves roughly $300, not $1,000. Calculate it →
Why these definitions exist
Financial writing has a habit of defining one piece of jargon with three others. Everything here is written to be understood on its own, with the practical consequence stated rather than implied — what the term costs you, when it applies, and which of our calculators does the arithmetic. Where a definition involves a 2026 figure, that figure comes from the IRS or the Social Security Administration and is checked when the annual numbers are published.
Missing something? Tell us and we will add it. The terms here were chosen because our own calculators use them, so the list grows as the tools do.
Social Security wage base
The income ceiling above which the 12.4% Social Security portion stops applying — $184,500 for 2026. Wages from a W-2 job count toward the same ceiling as your freelance earnings. Calculate it →