TurboTax 2025 Maximum SEP contribution amount seems to be in error???

[peterhsiegel]

I am self employed with no employees. I used the 20% of 0.93 x gross income rule to pre-calculate my maximum SEP contribution for 2025 and came out at 40K. However, when I just used TurboTax 2025 to maximize my traditional SEP contribution, it came out with 70K! This has to be an error. Has anyone had the same problem? Has this been reported to Inuit?

[CesarJ]

This is not an error. The SEP IRA contribution limit for a self-employed individual is 20% of SE net earnings (net profit minus half of self-employment tax), not gross income. SEP contributions are capped at $70,000 for 2025. If your net income supports that amount, TurboTax will correctly allow it. 

As long as your income and expenses are entered correctly, the calculation is accurate. Follow these steps in this article to ensure you are entering the information correctly:

1. Open or continue your return in TurboTax.
2. Navigate to the SEP IRA contributions section:
   • TurboTax Online/Mobile: Go to SEP IRA contributions.
   • TurboTax Desktop: Search for and select SEP IRA contributions (use this exact phrase, including the s on contributions).
3. On the Self-Employed Retirement Plans screen, answer Yes to Did you make a 2025 self-employed retirement plan contribution?
4. Depending on if you contributed, select Yes or No to the question Did you contribute to an Individual or Roth 401(k) plan?
   • If you get the message Self-Employed Retirement Plans are only for self-employed individuals (such as those filing Schedules, C, F, or K-1), this means that you haven't entered your self-employed income yet. Once you've entered your income, you can come back to these instructions.
5. On the next screen, select Yes to Do you want to make a contribution to a Keogh, SEP or SIMPLE retirement plan for 2025?
6. Answer any additional questions until you get to the Your Contributions screen, where you’ll be able to input your SEP IRA contributions.

[peterhsiegel]

Thank you for the response. I meant to write net income in my post, not gross. The net is what was used in my calculation for the allowed 40K amount. However, I may need to go through the Turbotax questions and answers instead of jumping right into the SEP contribution section. I will try this and post if it works. 

[peterhsiegel]

Just followed your prescription but still get 70,000 in TurboTax 2025. See three screens below. Obviously, this amount of SEP contribution is not allowed, because $70,000 is way more than 20% of net self-employment income.  

[peterhsiegel]

Could this have anything to do with the funny QBI credit for small businesses? According to TurboTax I received a $29,000 income deduction from form 8995. But I would think this would make the maximum SEP contribution even lower?

[DaveF1006]

No, the QBI deduction doesn't reduce your SEP contribution. Instead, the SEP reduces your QBI deduction. Here is an explanation of how this flow works.

1. Gross Business Income - Expenses = Net Profit
2. Net Profit - 1/2 SE Tax = Adjusted Net Earnings
3. Adjusted Net Earnings × 20% = Max SEP Contribution
4. (Adjusted Net Earnings - SEP Contribution) × 20% = Potential QBI Deduction

Assuming $213,665 is the adjusted net earnings amount, your maximum SEP contribution should be  $42,733, and the QBI is $34,186. Based on this, it sounds like there's an entry mistake or calculation mistake. Additionally, the $29,000 for your QBI is calculated using the $70,000 maximum SEP contribution.

I would suggest the following. 

1. Delete and Re-calculate.
2. Go to Tax Tools > Tools > Delete a Form. If using TurboTax desktop, go to the forms mode in your program.
3. Find the Keogh/SEP/SIMPLE Contribution Worksheet. Delete it.
4. Log out or close your return to save your changes.
5. Reenter the  "Self-Employed Retirement" section. This should pull your data from Schedule C and provide a cleaner copy.

If this doesn't work, we may need to see a diagnostic copy of your return to determine if the worksheets are calculating your SEP contribution and QBI correctly.

@peterhsiegel 

[taxnovice]

I concur with the OP. I had both w2 and 1099-NEC income. Turbotax is advising to sock away $80000 for SEP  IRA this year - this is definitely not 20% of net income. Something is not right in 2025 version of turbotax

[Oncologist]

I have a worse problem.  It is making me max out at 77,500.   However IRS disallows catch-up contributions for SEP IRA.  TurboTax is flawed when it comes to SEP IRA unless they know something we don’t. Can yield an audit, I’d think.  

[Oncologist]

The program wants me to contribute 77,500 on an income over 500k, presumably as a catch up of 7,500 for my SEP IRA for 2025 which is limited to 70k (or 72k?) it seems. Catch up contributions are not allowed so this could provoke an audit?  I can’t seem to be able to remove the 7500.   

[kaobowa]

Yes.  It's not working.  I called Turbo Tax last week and they were not able to help.  It needs to be fixed right away or I need to buy another Tax program to finish my return.

[taxnovice]

Those of you wondering how Turbotax is calculating exceedingly large SEP contributions for 2025, I think I found the root cause. In my case I had both W2 and 1099-NEC income and turbotax was calculating $81000 as maximum allowable SEP contribution. This exceeds the 70K limit and far exceeds the 20% of business income limit. Once I found the culprit and corrected it, it went back to 20% of my business income

Go to Form view and pull up the "Keogh, SEP and SIMPLE contribution worksheet". go to Part I line 6. If you had any entry in there or even a checkmark on line 6(f) then it will do this crazy contribution calculations. I removed the checkmark and voila the contributions went back to what I expected. Of course I now owe more taxes and all my QBI deductions are gone. But at least I am happy with the numbers. I must have answered "yes" somewhere during the step-by-step process which caused this confusion.

[kaobowa]

Thanks for the comment.

I see what you are saying, but my problem is different.  The K1 Partnership active income should be used to compute the maximum SEP contribution.  It knows this, but it won't compute it.

[RobertB4444]

Please double check the selection that you have made when looking at the maximum SEP contribution.  If you have selected 'Qualified Plans' that is not the same as a SEP and will allow you to make catch-up contributions as well as a much higher contribution than $70,000.

[taxnovice]

this is eye opening - didn't realize all these years I could have opened a solo 401K and contributed more. I tried this scenario in turbotax - since I also had a W2 I thought it would subtract my W2 contribution from the 23500 limit as employee - but it is putting in the full 23500 limit in the Keogh/simple worksheet. everywhere else I read, it says the full employee contribution limit is 23500 from all 401K