If you're self-employed or own a business, a Simplified Employee Pension (SEP) IRA can be a powerful way to save for retirement and reduce your taxable income. However, the IRS limits how much you can contribute each year.
How Much Can an Employer Contribute to a SEP IRA?
For the 2026 tax year, employer contributions to an employee's SEP IRA cannot exceed the lesser of:
- 25% of the employee's compensation, or
- $72,000 per participant.
These limits apply whether you're contributing for employees or contributing to your own SEP IRA as a self-employed individual.
What If I'm Self-Employed?
If you're self-employed, your SEP IRA contribution limit is based on your net earnings from self-employment, not simply your business profit.
Your calculation must account for:
- The deduction for one-half of your self-employment tax
- The SEP contribution itself
- Other IRS adjustments that may apply
Because of these special rules, calculating the maximum contribution can be more complicated than multiplying your income by 25%.
If your business had a net loss, you cannot make a SEP contribution for yourself. However, you may still be able to make contributions for eligible employees.
For additional guidance and worksheets, see IRS Publication 560, Retirement Plans for Small Business.
How Do I Report SEP Contributions for Employees?
Contributions you make for employees are generally deducted as a business expense on Schedule C.
TaxSlayer Navigation
- Federal Section
- Income (Select My Forms)
- Schedule C, Profit or Loss From Business
- General Expenses
- Pension and Profit-Sharing
How Do I Report Contributions to My Own SEP IRA?
If you're making contributions to your own SEP IRA, enter them in the retirement plan deduction section.
TaxSlayer Navigation
- Federal Section
- Deductions (Select My Forms)
- Adjustments to Income
- Contributions to SEP, SIMPLE, and Qualified Plans
Key Takeaways
- SEP IRA contributions are limited to the lesser of 25% of compensation or $72,000 for 2026.
- Self-employed contribution limits are based on net earnings from self-employment, using special IRS calculations.
- If you have a net loss, you cannot contribute to your own SEP IRA.
- Contributions made for employees are generally deductible as a business expense on Schedule C.
- Contributions made to your own SEP IRA are reported as an adjustment to income.
Additional Information