topic Does SEP RA maximum contribution change due to what? in Retirement tax questions

Does SEP RA maximum contribution change due to what?

peggyinca — Tue, 24 Feb 2026 04:48:54 GMT

Turbo Tax is saying my maximum SEP IRA contribution for 2022 is some hundreds less than the maximum of 25% of my self-employed income up to a maximum of $61,000. TT says I have to remove the excess contributions or pay a penalty. I made more than the 25%/maximum of $61,000.

Re: Does SEP RA maximum contribution change due to what?

VolvoGirl — Sun, 16 Apr 2023 17:57:20 GMT

You have to reduce the Net Profit by the deduction allowed for one-half of your self-employment taxes.

So check 1040 Schedule 1 line 15. You have to deduct that amount from your Schedule C Net Profit. That will give you the allowed contribution for self employment & 1099NEC income.

Re: Does SEP RA maximum contribution change due to what?

AliciaP1 — Sun, 16 Apr 2023 18:03:23 GMT

The calculation for a self-employed person for a SEP IRA contribution is different than the straight 25% of net income.

Per the IRS:

Plan compensation for a self-employed individual

To calculate your plan compensation, you reduce your net earnings from self-employment by:

the deductible portion of your SE tax from your Form 1040 return, Schedule 1, on the line for deductible part of self-employment tax, and
the amount of your own (not your employees’) retirement plan contribution from your Form 1040 return, Schedule 1, on the line for self-employed SEP, SIMPLE, and qualified plans.

You use your plan compensation to calculate the amount of your own contribution/deduction. Note that your plan compensation and the amount of your own plan contribution/deduction depend on each other - to compute one, you need the other (this is a circular calculation). One way to do this is to use a reduced plan contribution rate. You can use the Table and Worksheets for the Self-Employed (Publication 560) to find the reduced plan contribution rate to calculate the plan contribution and deduction for yourself.

Re: Does SEP RA maximum contribution change due to what?

dmertz — Mon, 17 Apr 2023 01:36:14 GMT

For a self-employed individual, the maximum contribution is 20% of net earnings, not 25%, because the SEP contribution itself effectively reduces the compensation on which the base rate of 25% is being applied.