S-Corp income to calculate personal SEP IRA | Ed Slott and Company, LLC

S-Corp income to calculate personal SEP IRA

I'm reviewing a tax return where the sole shareholder made a contribution to SEP IRA based on the net profit from the S-Corp. Wages was very minimal, but don't need to address reasonable compensation with my question.

I assume it's an error....Never seen someone using non-earned income for retirement calculations.

Yes, a large error that needs to be corrected, since the max contribution is 25% of the Box 1 W-2 wages. The excess amount plus allocated earnings should be distributed from the SEP and returned to the S Corp. The SEP deduction is of course limited to the allowed contribution. Failure to correct will result in a 10% excise tax.


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