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SEP IRA Calculator

This calculator estimates allowable SEP IRA employer contributions for traditional employer relationships (W-2 employees) and for owner-only/self-employed taxpayers. It implements the common IRS approach where employer contributions are limited to a percentage of compensation and also capped by the IRS annual contribution limit.

For sole proprietors and other self-employed taxpayers the calculation must account for half of self-employment tax and the deduction interaction that reduces the effective contribution percentage. Use the fields to enter your compensation or net self-employment income and, if needed, an estimate of half your self-employment tax.

Updated Nov 6, 2025

Calculate the owner-only SEP IRA contribution using the self-employed adjustment. The formula accounts for half self-employment tax and the deduction interaction that reduces the allowable contribution percentage.

Inputs

Results

Updates as you type

Estimated SEP contribution (USD)

$18,470.00

Effective percent of adjusted net earnings

—

OutputValueUnit
Estimated SEP contribution (USD)$18,470.00USD
Effective percent of adjusted net earnings—%
Primary result$18,470.00

Visualization

Methodology

Employer method: contribution is compensation × chosen rate (typically up to 25% for eligible employees). The calculator applies an IRS annual dollar limit (entered above) and returns the lesser of the percentage calculation and the dollar cap.

Self-employed method (sole proprietors): the contribution interacts with the allowable deduction. The conventional approach here uses the employer fraction of 25% but converts it to an effective rate for self-employed taxpayers by solving for the contribution when the deduction reduces the base. Mathematically this is rate / (1 + rate) applied to net earnings after subtracting half self-employment tax. For rate=25%, the effective multiplier is 0.25/(1+0.25) = 0.20 (20%).

Security and accuracy: calculators like this must protect user data and follow recognized controls for handling sensitive financial inputs. We recommend implementing controls aligned with NIST SP 800-53 / NIST Cybersecurity Framework and ISO/IEC 27001 for information security. Calculation logic should be validated and unit-tested; follow IEEE best practices for numerical robustness and document assumptions.

Worked examples

Example 1 (employee): Compensation = $60,000, Employer rate = 25% → uncapped contribution = $15,000. If the IRS annual limit is $69,000 the contribution stays $15,000.

Example 2 (self-employed): Net profit = $100,000, estimate half SE tax ≈ $7,650 → adjusted income = $92,350. Effective multiplier = 0.25/1.25 = 0.20 → uncapped contribution ≈ $18,470; apply the annual dollar limit if lower.

Further resources

Expert Q&A

Does the calculator include the IRS dollar limit?

Yes. Enter the current IRS annual contribution limit in the 'IRS annual contribution limit' field. The tool returns the lesser of the percentage-based contribution and that dollar cap. Verify the limit for your tax year from the IRS or your tax advisor.

How do I estimate half of self-employment tax?

If you do not have the exact figure from tax computations, estimate half of self-employment tax as net_self_employment_income × 0.0765 (half of 15.3%). For precise results use the actual amount from Schedule SE or your tax preparer.

Is the effective rate for self-employed always 20%?

The 20% effective multiplier shown arises from using the 25% employer fraction and solving for the deduction interaction: 0.25/(1+0.25)=0.20. If a different employer percentage is used, the calculator will apply the corresponding formula.

Is this a substitute for tax or legal advice?

No. This tool provides estimates only. Always verify calculations against IRS guidance and consult a tax professional for planning, filing, or compliance questions.

Sources & citations