Glossary
Plain-English definitions of tax and financial terms.
- Billable Hours
- Hours a contractor can charge a client for — typically less than total hours worked due to admin, marketing, and gaps.
- Effective Tax Rate
- The average rate you actually pay across all your income — total tax divided by total income.
- Employer FICA Contribution
- The 7.65% of your salary that your employer pays for Social Security and Medicare — a hidden benefit contractors don't receive.
- Marginal Tax Rate
- The tax rate applied to your last dollar of income — the highest bracket you reach.
- PTO Value
- The dollar value of paid time off — days you're paid without working, which contractors must fund from their hourly rate.
- Self-Employment Tax
- A 15.3% tax on net self-employment earnings that funds Social Security and Medicare — the contractor equivalent of FICA.
- Standard Deduction
- A fixed amount subtracted from gross income before tax brackets are applied — used by about 90% of filers.
- Taxable Income
- Your gross income minus deductions — the amount that tax brackets are applied to.
- Total Compensation
- The full value of an employment package including salary, benefits, employer taxes, PTO, and perks — not just base pay.