I do not understand TurboTax's calculation of my max contribution. The IRS says I may contribute 25% of my net, yet which is twice what TurboTax is calculating. I have already made the contribution and TurboTax is telling me to withdraw the difference or get penalized. Any help is appreciated. Thank you.
The base rate of 25% must be adjusted to 20% for a self-employed individual because the SEP contribution is an employer contribution that effectively reduces net earnings. The maximum SEP contribution for a self-employed individual is 20% of net earnings. Net earnings are net profit minus the deductible portion of self-employment taxes.
Excess SEP contributions are subject to a 10% excess-contribution penalty on Form 5330. TurboTax does not support Form 5330.
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