That is correct. Per the IRS:
The contributions you make to each employee's SEP-IRA each year cannot exceed the lesser of:
- 25% of compensation, or
- $61,000 for 2022 ($58,000 for 2021; $57,000 for 2020 and subject to annual cost-of-living adjustments for later years).
You state that the salary he pays himself is low, but those wages would have to exceed $232,000 for the $58,000 to be the "lesser" amount. So, he is limited to 25% of his W-2 wages for 2021.
SEP contributions are a business transaction. If you do not have a "business return" to report with your personal return (so a Schedule C) you do not enter this amount on your personal return.
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