SEP IRA contribution limit

[yan_zhuang]

I tried to set up my SEP IRA contribution for my wife's 1099 income.   All the information I found find by googling says 25% of net income (i.e. after cost and self employment tax deducted). The remaining net income (after removing all business cost) is about $32K.  Removing self employment tax by multiplying it with 92.35%.  That's about $29.5K.   25% of it is close to $7.5K.  But Turbo only calculated $5.5K, although I selected "maximize it".   Why?

Thanks

[dmertz]

25% of earnings only applies to regular W-2 employees, not to the self-employed individual.  For a self-employed individual, the maximum SEP contribution is 20% of net earnings.  Net earnings are net profit minus the deductible portion of self-employment taxes.  TurboTax's calculation is correct.