The formulas
- Employee: min(25% x compensation up to $360,000, $72,000)
- Self-employed: min(20% x (net profit - half of self-employment tax), $72,000)
How it works
Tax year: 2026.
An employer SEP contribution is up to 25 percent of each employee's compensation, with compensation capped at $360,000 and the contribution at the 2026 section 415(c) limit of $72,000. For a self-employed owner the effective rate is 20 percent of net earnings after deducting half of self-employment tax, which is 25 percent divided by 1.25.
The tool computes the self-employment tax deduction with the 2026 wage base. The SEP minimum compensation for 2026 is $800.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
Why is the self-employed rate 20 percent?
The contribution is itself deductible, so 25 percent of net earnings after the contribution works out to 20 percent of net earnings before it.
What is the 2026 dollar cap?
$72,000 per person under section 415(c).
Who must be included?
Employees who meet the plan eligibility rules, with the same percentage for each.
Sources
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.