Freelance & tax terms, defined.

Plain-English definitions of every term you'll run into as a 1099 worker. 23 entries.

1040-ES

The form used to calculate and pay quarterly estimated taxes.

1099-K

A tax form from payment processors (PayPal, Stripe, Etsy) reporting your gross payments over the reporting threshold.

1099-NEC

A tax form clients send freelancers to report non-employee compensation of $600 or more in a year.

Above-the-line deduction

Deductions taken before AGI — like half of SE tax and self-employed health insurance.

EIN

Employer Identification Number — a federal tax ID for your business, used on W-9s instead of your SSN.

Estimated Tax Penalty

Interest charged by the IRS when you underpay your quarterly estimated taxes. Computed quarter-by-quarter using federal short-term rate + 3%.

Home Office Deduction

A deduction for the portion of your home used regularly and exclusively for business. Computed via the simplified $5/sq ft method (max 300 sq ft) or the actual-expense method.

HSA

Health Savings Account — triple-tax-advantaged account tied to high-deductible health plans.

Net Earnings from Self-Employment

Gross business income minus deductible expenses, multiplied by 92.35%. The base for computing self-employment tax.

Pass-Through Entity

A business structure (sole prop, partnership, LLC, S-Corp) where profits flow directly to the owner's personal tax return rather than being taxed at the entity level.

QBI deduction

A 20% deduction on Qualified Business Income under Section 199A, available to many pass-through businesses.

Quarterly Estimated Tax

Estimated income and self-employment tax payments freelancers make four times a year (Apr, Jun, Sep, Jan) to avoid an underpayment penalty.

S-Corp election

Tax treatment where your LLC pays you a salary, saving on SE tax on distributions.

Safe harbor

A rule that protects you from estimated-tax penalties if you pay enough based on last year's tax.

Safe Harbor Rule

IRS guideline that lets you avoid an underpayment penalty if you pay either 90% of the current year's tax or 100% of last year's (110% if AGI > $150K).

Schedule C

The IRS form where sole proprietors and single-member LLCs report business income and expenses.

Schedule SE

Used to calculate self-employment tax — the 15.3% Social Security and Medicare payment on net SE profit.

SE tax

Self-employment tax — 12.4% Social Security plus 2.9% Medicare on 92.35% of net self-employment profit.

Self-Employment Tax

The 15.3% combined Social Security (12.4%) and Medicare (2.9%) tax that 1099 workers owe on their net business earnings.

SEP IRA

Simplified Employee Pension IRA — easy retirement plan for freelancers with contribution limits up to 25% of compensation.

Solo 401(k)

A retirement plan for self-employed people with no employees — high contribution limits.

Standard Mileage Rate

The IRS-published per-mile rate freelancers can use to deduct business driving instead of tracking actual vehicle expenses.

W-9

Form you give clients so they can issue you a 1099 at year-end.