If a business owner did not pay himself and no W2 wages were reported from the business for 2023, can the employer still make a contribution to the Business owner’s SEP?

The CPA is telling the business owner that the business does not qualify to make a 2023 contribution to the employee’s SEP because there was no income earned from the business.

The IRS states the following: “Contributions to a retirement plan can only be made from compensation, which, in the case of a self-employed individual, is earned income. Distributions you receive as a shareholder of an S corporation do not constitute earned income for retirement plan purposes (see IRC Sections 401(c)(1) and 1402(a)(2)).”