FEDTAX * IRS
* HOME * PUB_560Chapter
5
Table and Worksheets for the Self-Employed
As discussed in chapters 2 and 4, if you are self-employed, you must use the following
rate table or rate worksheet and deduction worksheet to figure your deduction for
contributions you made for yourself to a SEP-IRA or qualified plan.
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 table and the
worksheets that follow apply only to unincorporated employers who have only one defined
contribution plan, such as a profit-sharing plan. A SEP plan is treated as a
profit-sharing plan.
Rate table for self-employed. If your plan's contribution rate is a whole
percentage (for example, 12% rather than 12 1/2%), you can use the following table to find
your reduced contribution rate. Otherwise, use the rate worksheet provided later.
First, find your plan contribution rate (the contribution rate stated in your plan) in Column
A of the table. Then read across to the rate under Column B. Enter the rate
from Column B in step 1 of the Deduction Worksheet for Self-Employed.
| Rate Table for Self-Employed |
| Column A If the plan contri- bution rate is: (shown as
%) |
Column B Your rate is: (shown as decimal) |
| 1 |
.009901 |
| 2 |
.019608 |
| 3 |
.029126 |
| 4 |
.038462 |
| 5 |
.047619 |
| 6 |
.056604 |
| 7 |
.065421 |
| 8 |
.074074 |
| 9 |
.082569 |
| 10 |
.090909 |
| 11 |
.099099 |
| 12 |
.107143 |
| 13 |
.115044 |
| 14 |
.122807 |
| 15* |
.130435* |
| 16 |
.137931 |
| 17 |
.145299 |
| 18 |
.152542 |
| 19 |
.159664 |
| 20 |
.166667 |
| 21 |
.173554 |
| 22 |
.180328 |
| 23 |
.186992 |
| 24 |
.193548 |
| 25* |
.200000* |
| *The deduction for annual employer contributions to a SEP
plan or a profit-sharing plan cannot be more than 13.0435% of your net earnings (figured
without deducting contributions for yourself) from the business that has the plan. If the
plan is a money purchase pension plan, the deduction is limited to 20% of your net
earnings. |
Example. You are a sole proprietor and have employees. If your plan's
contribution rate is 10% of a participant's compensation, your rate is 0.090909. Enter
this rate in step 1 of the Deduction Worksheet for Self-Employed.
Rate worksheet for self-employed. If your plan's contribution rate is not a
whole percentage (for example, 10 1/2%), you cannot use the Rate Table for
Self-Employed. Use the following worksheet instead.
| Rate Worksheet for Self-Employed |
| 1) |
Plan contribution rate as a decimal (for example, 10 1/2% =
0.105) |
|
| 2) |
Rate in line 1 plus 1 (for example, 0.105 + 1 = 1.105) |
|
| 3) |
Self-employed rate as a decimal rounded to at least 3
decimal places (line 1 ÷ line 2) |
|
Figuring your deduction. Now that you have your self-employed rate from either
the rate table or rate worksheet, you can figure your maximum deduction for contributions
for yourself by completing the following worksheet.
Community property laws. If you reside in a community property state and
you are married and filing a separate return, disregard community property laws for line 2
of the following worksheet. Enter on line 2 the total net profit you actually earned.
| Deduction Worksheet for Self-Employed |
| Step 1 |
|
| Enter your rate from the Rate Table for Self-Employed or
Rate Worksheet for Self-Employed |
|
| Step 2 |
|
| Enter your net earnings (net profit) from line 31, Schedule
C (Form 1040); line 3, Schedule C-EZ (Form 1040); line 36, Schedule F (Form 1040); or line
15a, Schedule K-1 (Form 1065) |
|
| Step 3 |
|
| Enter your deduction for self-employment tax from line 27,
Form 1040 |
|
| Step 4 |
|
| Subtract step 3 from step 2 and enter the result |
|
| Step 5 |
|
| Multiply step 4 by step 1 and enter the result |
|
| Step 6 |
|
| Multiply $170,000 by your plan contribution rate. Enter the
result, but not more than $35,000 |
|
| Step 7 |
|
| Enter the lesser of step 5 or step 6. This is your maximum
deductible contribution. Enter your deduction on line 29, Form 1040 |
|
Example. You are a sole proprietor and have employees. The terms of your
plan provide that you contribute 8 1/2% (.085) of your compensation and 8 1/2% of your
participants' compensation. Your net profit from line 31, Schedule C (Form 1040) is
$200,000. In figuring this amount, you deducted your common-law employees' compensation of
$100,000 and contributions for them of $8,500 (8 1/2% x $100,000). Your self-employment
tax deduction on line 27 of Form 1040 is $7,663. See the filled-in portions of both
Schedule SE (Form 1040), Self-Employment Income, and Form 1040, later.
You figure your self-employed rate and maximum deduction for employer contributions you
made for yourself as follows.
| Rate Worksheet for Self-Employed |
| 1) |
Plan contribution rate as a decimal (for example, 10 1/2% =
0.105) |
0.085 |
| 2) |
Rate in line 1 plus 1 (for example, 0.105 + 1 = 1.105) |
1.085 |
| 3) |
Self-employed rate as a decimal rounded to at least 3
decimal places (line 1 ÷ line 2) |
0.078 |
| Deduction Worksheet for Self-Employed |
| Step 1 |
|
| Enter your rate from the Rate Table for Self-Employed or
Rate Worksheet for Self-Employed |
0.078 |
| Step 2 |
|
| Enter your net earnings (net profit) from line 31, Schedule
C (Form 1040); line 3, Schedule C-EZ (Form 1040); line 36, Schedule F (Form 1040); or line
15a, Schedule K-1 (Form 1065) |
$200,000 |
| Step 3 |
|
| Enter your deduction for self-employment tax from line 27,
Form 1040 |
7,663 |
| Step 4 |
|
| Subtract step 3 from step 2 and enter the result |
192,337 |
| Step 5 |
|
| Multiply step 4 by step 1 and enter the result |
15,002 |
| Step 6 |
|
| Multiply $170,000 by your plan contribution rate. Enter the
result but not more than $35,000 |
14,450 |
| Step 7 |
|
| Enter the lesser of step 5 or step 6. This is your maximum
deductible contribution. Enter your deduction on line 29, Form 1040 |
$ 14,450 |
Portion of Form 1040 and Portion of Schedule SE |
