Updated November 5, 2026. Quick answer: The Deduction Worksheet for Self-Employed in Publication 560 (2025) finds the most a sole proprietor or partner can deduct for their own SEP IRA or qualified plan contribution. Steps 1 to 8 start from net profit, take out the self-employment tax deduction, apply the reduced rate and the $70,000 dollar limit; Steps 9 to 21 add elective deferrals and catch-up contributions. Step 21 is the maximum deductible contribution, and the actual contribution goes on Schedule 1 (Form 1040), line 16.
What the worksheet does
Chapter 5 of the publication says “First, use either the rate table or rate worksheet to find your reduced contribution rate. Then, complete the deduction worksheet to figure your deduction for contributions.” The rate comes from the Rate Worksheet for Self-Employed. The limit that sits behind Step 8 for SEP contributions is in the Publication 560 guide.
The 21 steps
| Step | What it asks |
|---|---|
| Step 1 | “Enter your net profit from Schedule C (Form 1040), line 31; Schedule F (Form 1040), line 34;” or Schedule K-1 (Form 1065), box 14, code A |
| Step 2 | “Enter your deduction for self-employment tax from Schedule 1 (Form 1040), line 15” |
| Step 3 | “Net earnings from self-employment. Subtract step 2 from step 1” |
| Step 4 | “Enter your rate from the Rate Table for Self-Employed or Rate Worksheet for Self-Employed” |
| Step 5 | “Multiply step 3 by step 4” |
| Step 6 | “Multiply $350,000 by your plan contribution rate (not the reduced rate)” |
| Step 7 | “Enter the smaller of step 5 or step 6” |
| Step 8 | “Contribution dollar limit” (printed as $70,000) |
| Step 9 | “Enter your allowable elective deferrals (including designated Roth contributions) made to your self-employed plan for the 2025 plan year. Don’t enter more than $23,500” |
| Step 10 | “Subtract step 9 from step 8” |
| Step 11 | “Subtract step 9 from step 3” |
| Step 12 | “Enter one-half of step 11” |
| Step 13 | “Enter the smallest of step 7, step 10, or step 12” |
| Step 14 | “Subtract step 13 from step 3” |
| Step 15 | “Enter the smaller of step 9 or step 14” |
| Step 16 | “Subtract step 15 from step 14” |
| Step 17 | “Enter your catch-up contributions (including designated Roth contributions), if any” |
| Step 18 | “Enter the smaller of step 16 or step 17” |
| Step 19 | “Add steps 13, 15, and 18” |
| Step 20 | “Enter the amount of designated Roth contributions included on steps 9 and 17” |
| Step 21 | “Subtract step 20 from step 19. This is your maximum deductible contribution” |
The worksheet has two exits. After Step 8 it says “If you made any elective deferrals to your self-employed plan, go to step 9.” and “Otherwise, skip steps 9 through 20 and enter the smaller of step 7 or step 8 on step 21.” After Step 15 it says “If you made catch-up contributions, go to step 16.” and “Otherwise, skip steps 16 through 18 and go to step 19.”
Where each step comes from
Step 1 has two notes. “Reduce this amount by any amount reported on Schedule SE (Form 1040), line 1b.” applies to Schedule F and Schedule K-1 amounts, and general partners adjust box 14 as the worksheet footnote says. Step 2 is the half of self-employment tax on Schedule 1 line 15, and Schedule SE is where the underlying earnings are figured.
Community property: “If you reside in a community property state and you are married and filing a separate return, disregard community property laws for step 1” and “Enter on step 1 the total net profit you actually earned.”
The publication’s own example, no elective deferrals
The publication’s example is a sole proprietor with a plan rate of 8.5% (0.085 as a decimal, computed from the percent), a net profit of $200,000 and a self-employment tax deduction of $13,596. Its filled-in worksheet reads:
| Step | Entry | Value |
|---|---|---|
| Step 1 | Net profit from Schedule C line 31 | $200,000 |
| Step 2 | Self-employment tax deduction, Schedule 1 line 15 | $13,596 |
| Step 3 | Step 1 minus step 2 (computed) | $186,404 |
| Step 4 | Rate from the Rate Worksheet (on the Rate Worksheet page: 0.085 gives 0.078) | 0.078 |
| Step 5 | Step 3 times step 4, 186,404 times 0.078 is 14,539.512 (computed), shown by the publication as | $14,540 |
| Step 6 | $350,000 times the plan rate 0.085, 350,000 times 0.085 is 29,750 (computed) | $29,750 |
| Step 7 | Smaller of step 5 and step 6 (computed) | $14,540 |
| Step 8 | Contribution dollar limit | $70,000 |
| Steps 9 to 20 | No elective deferrals or catch-up contributions, so skipped | N/A |
| Step 21 | Smaller of step 7 and step 8 (computed) | $14,540 |
The maximum deductible contribution is $14,540. Step 5 is where the rate and the rounding matter: the product is 14,539.512 and the publication shows $14,540.
Example with elective deferrals, invented numbers
Illustration, not an IRS example. The profit, the self-employment tax deduction and the plan are made up; the rate is the 15% row of the rate table and the arithmetic is computed. A sole proprietor with a solo 401(k) who deferred the $23,500 maximum:
| Step | Entry | Value |
|---|---|---|
| Step 1 | Net profit (invented) | $150,000 |
| Step 2 | Self-employment tax deduction (invented) | $10,000 |
| Step 3 | 150,000 minus 10,000 (computed) | $140,000 |
| Step 4 | Table rate for a 15% plan (on the Rate Worksheet page) | 0.130435 |
| Step 5 | 140,000 x 0.130435 = 18,260.9 (computed), rounded to a whole dollar | $18,261 |
| Step 6 | $350,000 x 0.15 (computed) | $52,500 |
| Step 7 | Smaller of 18,261 and 52,500 (computed) | $18,261 |
| Step 8 | Contribution dollar limit | $70,000 |
| Step 9 | Elective deferrals made (invented, the $23,500 maximum) | $23,500 |
| Step 10 | 70,000 minus 23,500 (computed) | $46,500 |
| Step 11 | 140,000 minus 23,500 (computed) | $116,500 |
| Step 12 | One-half of 116,500 (computed) | $58,250 |
| Step 13 | Smallest of 18,261, 46,500 and 58,250 (computed) | $18,261 |
| Step 14 | 140,000 minus 18,261 (computed) | $121,739 |
| Step 15 | Smaller of 23,500 and 121,739 (computed) | $23,500 |
| Steps 16 to 18 | No catch-up contributions, so skipped (the entry is zero) | 0 |
| Step 19 | 18,261 + 23,500 (computed) | $41,761 |
| Step 20 | No designated Roth contributions (invented) | 0 |
| Step 21 | 41,761 minus 0 (computed) | $41,761 |
The maximum deductible contribution is $41,761 (computed): $18,261 of employer contribution plus $23,500 of elective deferrals. The limit can bind on the other side: with a made-up net profit of $400,000, a self-employment tax deduction of $14,000 and a 25% plan (table rate 0.200000), Step 3 is $386,000 (computed), Step 5 is $77,200 (computed) and Step 6 is $87,500 (computed), so Step 7 is $77,200 (computed) and Step 8 holds the answer to $70,000.
Amounts for other years
The dollar amounts in this worksheet are the 2025 plan year amounts: the $350,000 in Step 6, the $70,000 in Step 8 and the $23,500 cap on Step 9. The same publication says “In 2026, the amounts in (2) above increase to $360,000 and $72,000, respectively.” That sentence is about the SEP deduction limit; the 2026 version of the worksheet is not in this edition. The 2026 limits are on the SEP IRA limit page and the Solo 401(k) limit page.
Edition
This page reads Publication 560 (2025), Retirement Plans for Small Business, the file irs.gov served on 2026-11-05. Step numbers and dollar amounts belong to that edition, so check the label printed on the worksheet in your own copy before you follow a step reference.
Common mistakes
- Using the plan rate in Step 4. The reduced rate from the Rate Worksheet or table goes there, and only Step 6 uses the plan rate.
- Skipping Step 2. The deduction for self-employment tax comes out before the rate is applied, so Step 3 is smaller than net profit.
- Entering more than the cap on Step 9. The worksheet says not to enter more than the elective deferral maximum.
- Deducting more than Step 21. The publication says to enter your actual contribution, not to exceed the maximum deductible contribution, on Schedule 1, line 16.
Related: Publication 560, the Solo 401(k) limit, and self-employment tax.
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Answer againSources
- Publication 560 (2025), Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans): https://www.irs.gov/pub/irs-pdf/p560.pdf
- IRS, About Publication 560, Retirement Plans for Small Business: https://www.irs.gov/forms-pubs/about-publication-560
Read from the IRS documents linked above on November 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.