As described below, any employer may establish a SEP if, among other things, the participation requirements for SEPs are satisfied. In this regard, trades or businesses that are considered to be members of the same controlled group are treated as a single employer. However, the SEP must exist at the time any contributions are made and such contributions must be made within the time limit. This timing requirement for establishing a SEP is different from most other employer-sponsored retirement arrangements that require that an employer establish the retirement arrangement prior to the end of the employer's tax year. Thus, employers who do not know their financial condition, and consequently their ability to contribute to a retirement plan, until after the close of the tax year may find the liberal timing rules of a SEP more advantageous than other retirement arrangements.
Compensation also includes taxable alimony or separate maintenance payments.
Earned income is reduced by contributions made by an employer to a qualified plan or a SEP and by one half of the self-employed's social security taxes.