SEP IRAs work like traditional IRAs when it comes to tax treatment. You make pre-tax contributions, so you must pay taxes later when you take withdrawals or RMDs. For each tax year you contribute, that amount is deductible. The maximum deduction on your business's tax return if you contribute to your employees' SEP IRAs is the lesser of your contributions or 25% of compensation. Self-employed contributors must use the IRS's formula to calculate the maximum deduction.