SEP for employee and employer

[Kram BergGold]

My client is putting money into a SEP for herself and her 1 employee. Lets say the employee's contribution will be 10%. He makes $40,000 so the amount deducted on Schedule C is $4,000. She made $50,000 and her percentage for 10% is 9.0909. Do I multiply 9.0909 to her net Schedule C, $50,000 or to the net plus the $4,000 contribution for the employee, $50,000?

[Brad Imsdahl]

The 9.0909% rate applies to the net SE income minus the one-half SE tax deduction. Since the contribution for the employee is a deduction on Schedule C, net SE income is first reduced by the employee's SEP contribution before figuring the Sole Prop's SEP.

$50,000 minus $4,000 = $46,000 minus one-half SE tax deduction ($3,250) = $42,750 X 9.0909% = $3,886

[Kram BergGold]

Thanks Brad

I knew I had this jumbled up in my brain.