Gig Worker Tax Glossary
A comprehensive guide to tax terminology for gig workers, freelancers, and independent contractors. Understanding these terms will help you navigate tax filing, maximize deductions, and stay compliant with IRS requirements.
Actual Expense Method
A method of deducting vehicle expenses where you track and deduct actual costs (gas, repairs, insurance, depreciation) instead of using the standard mileage rate. You must choose between this and the standard mileage rate each year.
Adjusted Gross Income (AGI)
Your total gross income minus specific deductions (like the 50% self-employment tax deduction and retirement contributions). AGI is used to determine your eligibility for various tax credits and deductions.
Audit
An IRS examination of your tax return to verify accuracy. Gig workers with high expense-to-income ratios or large deductions may face higher audit risk. Keep detailed records to support all deductions.
Business Expenses
Ordinary and necessary costs of running your gig business that you can deduct on Schedule C. Examples: mileage, supplies, phone bills, insurance, and professional fees.
Business Use Percentage
The portion of an expense (like phone or vehicle) used for business vs. personal purposes. Only the business percentage is deductible. Example: If you use your phone 60% for gig work, deduct 60% of the bill.
Contemporaneous Records
Documentation created at or near the time an expense occurs. The IRS requires contemporaneous mileage logsyou can't recreate them months later from memory.
Cost of Goods Sold (COGS)
Direct costs of producing goods you sell. For most gig workers (drivers, freelancers), this doesn't apply. Relevant for resellers or product-based businesses.
Deduction
An expense that reduces your taxable income. Gig workers can deduct business expenses on Schedule C, reducing both income tax and self-employment tax.
Depreciation
The gradual deduction of the cost of business assets (vehicles, equipment) over their useful life. If you use actual vehicle expenses, you can depreciate your car's value over time.
Effective Tax Rate
Your total tax divided by your total income, expressed as a percentage. Example: If you earn $50,000 and pay $11,000 in taxes, your effective rate is 22%.
Estimated Tax Payments
Quarterly tax payments made to the IRS if you expect to owe $1,000+ in taxes. Due April 15, June 16, September 15, and January 15. Failure to pay quarterly results in penalties.
Expense Ratio
Your total expenses divided by gross income. High ratios (over 55%) may trigger IRS scrutiny. Keep detailed records to justify all deductions.
Filing Status
Your tax filing category: Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Widow(er). Determines your standard deduction and tax brackets.
Form 1040
The main individual income tax return form. Gig workers attach Schedule C (business income/expenses) and Schedule SE (self-employment tax) to Form 1040.
Form 1040-ES
Estimated Tax for Individuals. Use this worksheet to calculate quarterly tax payments. Includes vouchers for mailing payments or instructions for online payment.
Form 1099-K
Payment card and third-party network transactions form. Issued if you received $5,000+ in payments through platforms like Uber, DoorDash, or Upwork in 2026.
Form 1099-NEC
Nonemployee Compensation form. Issued if you earned $600+ as an independent contractor. Reports your gross earnings (before expenses) in Box 1.
Gig Economy
A labor market characterized by short-term contracts or freelance work (gigs) rather than permanent jobs. Includes rideshare drivers, delivery workers, freelancers, and online sellers.
Gross Income
Total income before any deductions or expenses. For gig workers, this is the amount shown on your 1099 forms or total platform earnings.
Home Office Deduction
Deduction for the business use of your home. Must be a dedicated space used regularly and exclusively for business. Use simplified method ($5/sq ft, max 300 sq ft) or regular method (percentage of home expenses).
Independent Contractor
A self-employed worker who provides services to clients but is not an employee. Gig workers are typically independent contractors, receiving 1099 forms instead of W-2s.
IRS
Internal Revenue Service. The federal agency responsible for tax collection and enforcement. Administers the tax code and conducts audits.
Marginal Tax Rate
The tax rate on your last dollar of income. Due to progressive tax brackets, your marginal rate is usually higher than your effective rate.
Medicare Tax
Part of self-employment tax. 2.9% of net self-employment income (no income limit). An additional 0.9% applies to income over $200,000 (single) or $250,000 (married).
Mileage Log
Record of business miles driven, including date, starting/ending locations, purpose, and miles. Required by IRS for mileage deductions. Use apps like Stride or MileIQ for automatic tracking.
Net Income (Net Profit)
Gross income minus business expenses. This is your taxable self-employment income, subject to both income tax and self-employment tax.
Ordinary and Necessary
IRS standard for deductible business expenses. 'Ordinary' means common in your industry; 'necessary' means helpful and appropriate for your business.
Qualified Business Income (QBI) Deduction
Also called the Section 199A deduction. Allows eligible self-employed individuals to deduct up to 20% of qualified business income. Subject to income limits and phase-outs.
Quarterly Taxes
Estimated tax payments made four times per year (April, June, September, January). Required if you expect to owe $1,000+ in taxes for the year.
Safe Harbor Rule
IRS rule to avoid underpayment penalties. Pay either (1) 90% of current year's tax, or (2) 100% of prior year's tax (110% if AGI over $150,000). Protects you even if you underpay.
Schedule C
Profit or Loss from Business form. Gig workers use this to report business income and expenses. Attached to Form 1040. Net profit flows to Schedule SE for self-employment tax calculation.
Schedule SE
Self-Employment Tax form. Calculates the 15.3% self-employment tax on net profit from Schedule C. Also determines the 50% SE tax deduction.
Self-Employment Tax
15.3% tax on net self-employment income, covering Social Security (12.4%) and Medicare (2.9%). Equivalent to the employer + employee portions of FICA tax that W-2 employees pay.
Social Security Tax
Part of self-employment tax. 12.4% of net self-employment income up to $168,600 (2026 wage base limit). Income above this limit is exempt from Social Security tax.
Standard Deduction
A fixed dollar amount that reduces taxable income. 2026 amounts: $14,600 (single), $29,200 (married filing jointly), $21,900 (head of household). Most gig workers use this instead of itemizing.
Standard Mileage Rate
IRS-set rate for deducting vehicle expenses. 67 per mile for 2026. Covers gas, maintenance, insurance, and depreciation. Simpler than tracking actual expenses.
Tax Bracket
Income ranges taxed at specific rates. The US uses progressive brackets (10%, 12%, 22%, 24%, 32%, 35%, 37% for 2026). Only income within each bracket is taxed at that rate.
Taxable Income
Your AGI minus the standard deduction (or itemized deductions). This is the amount used to calculate your federal income tax.
W-2
Wage and Tax Statement for employees. Gig workers typically don't receive W-2sthey receive 1099 forms instead because they're independent contractors, not employees.
Wage Base Limit
Maximum income subject to Social Security tax. $168,600 for 2026. Income above this is exempt from the 12.4% Social Security portion of self-employment tax (but still subject to 2.9% Medicare tax).
Related Resources
Need More Help?
Tax terminology can be confusing, but understanding these terms is crucial for managing your gig worker taxes effectively. If you're unsure about any tax concept or how it applies to your situation, consult with a tax professional who specializes in self-employment taxes.
Pro tip: Bookmark this glossary and refer back to it when filing your taxes, reading IRS publications, or working with your accountant. Understanding the language of taxes will help you make better financial decisions and maximize your deductions.