SEP contributions & self-employment tax

Submitted by Robert Vashko on Tue, 2023-01-10 19:51

If a self-employed individual makes a SEP contribution, I know that the contribution is a deduction against federal income tax that year, it does the self-employed person also avoid the 15.4% self-employment tax? I can’t find a clear answer.

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Permalink Submitted by David Mertz on Tue, 2023-01-10 20:19

The SEP contribution has no effect on self-employment tax. See Schedule SE which begins with net profit from Schedule C (or F) and has no adjustment for any self-employed retirement deduction.

Permalink Submitted by Robert Vashko on Tue, 2023-01-10 20:25

Thanks. So, self-employed, makes $10,000 SEP contribution, can deduct the $10K from income tax, but still must pay the full $1,530 in SE tax?

Permalink Submitted by Alan - IRA critic on Tue, 2023-01-10 20:28

Yes, the SEP contribution will not reduce the SE Tax.

Permalink Submitted by Robert Vashko on Tue, 2023-01-10 20:42

Thank you!

Permalink Submitted by William Tuttle on Tue, 2023-01-10 23:11

A SEP IRA employer contribution for a sole proprietor is not deducted on Schedule C as a business expense.
It is a personal deduction on their personal Form 1040, Schedule 1.
Therefore, it does not reduce Schedule C business profit. Which does not reduce the Schedule SE tax calculation.

Permalink Submitted by Robert Vashko on Fri, 2023-01-13 22:29

Thank you, as well.

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