SEP IRA: Definition and 2026 Limit for Drivers

A SEP IRA (Simplified Employee Pension IRA) is a retirement account that a business sets up to save for its owner and any employees. For a TLC driver who works as a sole proprietor, you are the business, so you can put money in for yourself as the "employer." It is one of the simplest ways for a self-employed driver to save more than a regular IRA allows. Rules are in IRS Publication 560.

The numbers (tax year 2026)

How the 20% works

Plans are often written as "up to 25% of compensation." For a self-employed person, Publication 560's Rate Table for Self-Employed turns 25% into 0.200000, or 20%. You apply it to your net earnings from self-employment: Schedule C net profit minus the deduction for half of self-employment tax. Example (fictional): $50,000 net profit minus about $3,532 = $46,468; 20% of that is about $9,294. The worked example is on retirement savings for NYC drivers.

Where you'll see this term

• When a bank or broker offers you a "SEP" account for self-employed people.
• On your tax return, where the contribution is a deduction for the self-employed.
• In IRS Publication 560 and its deduction worksheet. The worksheet walks you from Schedule C net profit to the most you can deduct for your own SEP contribution.

Common mix-ups

• Not a solo 401(k). A solo 401(k) adds an employee deferral (up to $24,500 for 2026) on top of the 20%, so it can allow more from the same profit.
• Not a SARSEP. Only SARSEP elective deferrals count for the Saver's Credit; regular SEP contributions are not on the IRS list.
• 20% of profit, not fares. Your app's gross earnings are not the base. Expenses and half of self-employment tax come off first.
• Doesn't lower SE tax. The contribution reduces income tax, not Social Security and Medicare tax.

Related: retirement savings for drivers, Social Security credits, yellow taxi fare per trip, Uber and Lyft driver earnings and the money topic.