To calculate the solo 401(k) employer contribution for 2026, apply 25% to your W-2 wages if your business is an S-corp or C-corp, or an effective 20% to your adjusted net self-employment earnings if you file Schedule C. Either way, the total of your employer contribution plus your employee deferral cannot exceed $72,000 for the year.1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs The percentage looks similar in both cases, but the compensation base is defined differently, and that is where most calculation errors start.
If You Take a W-2 From an S-Corp or C-Corp
Your compensation base is the W-2 wages the corporation pays you. Apply 25% directly to that number.2Internal Revenue Service. One-Participant 401(k) Plans No further adjustment is needed.
Say your corporation pays you $120,000 in W-2 wages. The maximum employer profit-sharing contribution is $120,000 × 25% = $30,000. The corporation writes the check to the plan trust and deducts the $30,000 as a business expense.
Only compensation up to $360,000 counts toward the calculation in 2026.1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs Even at $500,000 in wages, your 25% figure tops out at $90,000, and the $72,000 overall cap discussed below will usually be the real ceiling.
If You File Schedule C as a Sole Proprietor
The 25% rate does not work the same way on self-employment income, because the contribution itself reduces the earned-income base it is calculated from. The IRS breaks that circularity with a reduced contribution rate.3Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction
The formula is: plan rate ÷ (1 + plan rate). For a plan set at the maximum 25%, that becomes 25% ÷ 125% = 20%. You then apply the 20% to net earnings from self-employment after subtracting half of your self-employment tax, not to raw Schedule C profit.3Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction
Work through $100,000 of Schedule C net profit:
- Calculate SE tax: $100,000 × 92.35% × 15.3% = $14,130.
- Subtract half the SE tax from net profit: $100,000 − $7,065 = $92,935.
- Apply the reduced rate: $92,935 × 20% = $18,587.
The maximum employer contribution is $18,587, not $20,000 and not $25,000. You can verify it by checking that the earned income left after the contribution, times 25%, equals the contribution itself: $92,935 − $18,587 = $74,348, and $74,348 × 25% = $18,587.3Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction
One trap to avoid: the employee elective deferral does not reduce your earned income for this calculation. The IRS adds deferrals back before computing the employer contribution deduction limit.4Internal Revenue Service. Calculation of Plan Compensation for Sole Proprietorships Only the employer profit-sharing amount itself gets subtracted.
The contribution is discretionary. You can put in any amount from zero up to the calculated maximum, which gives you room to manage cash flow year to year.
How the $72,000 Cap Fits Over the Top
Your employer contribution and your employee elective deferral share a single ceiling. Under IRC Section 415(c), total additions to your account for 2026 cannot exceed the lesser of 100% of compensation or $72,000.5Office of the Law Revision Counsel. 26 USC 415 – Limitations on Benefits and Contribution Under Qualified Plans1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs
The 2026 elective deferral limit is $24,500.6Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 If you defer the full $24,500, the largest employer contribution you can add is $72,000 − $24,500 = $47,500, provided your compensation supports it.
An S-corp owner paying themselves $200,000 in W-2 wages has 25% headroom of $50,000, so a $24,500 deferral plus a $47,500 employer contribution lands exactly at $72,000. Cut the same owner’s wages to $100,000, and the 25% cap drops the employer contribution to $25,000. Total additions then max out at $49,500.
If You Are 50 or Older
Catch-up contributions sit outside the $72,000 cap and always come in as employee deferrals, not employer profit-sharing.7Internal Revenue Service. Retirement Topics – Catch-Up Contributions For 2026 the standard catch-up is $8,000. Under SECURE 2.0, participants aged 60, 61, 62, or 63 get an enhanced catch-up of $11,250; at 64, you drop back to $8,000.6Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
So the absolute 2026 ceilings are:
- Age 50–59 or 64+: $72,000 + $8,000 = $80,000.
- Age 60–63: $72,000 + $11,250 = $83,250.
Catch-ups do not change your employer contribution math. They only raise the total of what can land in the account.
Deadlines to Actually Fund It
The employer profit-sharing contribution must be made by the due date of the business’s federal income tax return, including extensions. That deadline varies by entity:
- Sole proprietors filing Schedule C: April 15, or October 15 with a valid extension.8Internal Revenue Service. Publication 509 (2026) – Tax Calendars
- S-corporations filing Form 1120-S: March 15, or September 15 with a valid extension.9Internal Revenue Service. Instructions for Form 1120-S (2025)
- C-corporations filing Form 1120: April 15, or October 15 with a valid extension.8Internal Revenue Service. Publication 509 (2026) – Tax Calendars
S-corp owners have the shortest runway. Filing Form 7004 by March 15 extends the funding deadline to September 15.
Employee deferrals follow a separate rule. W-2 owners must have deferrals withheld from wages paid during the calendar year, which puts the practical election deadline at December 31. Sole proprietors who establish the plan by the original filing deadline can make both deferrals and profit-sharing contributions up to that filing date; if the plan is established later, only profit-sharing contributions can be made for that year.
A Few Boundaries Worth Naming
The $24,500 employee deferral limit is a personal limit across every 401(k) you participate in, not a per-plan limit. If you also defer into a day-job 401(k), your combined deferrals cannot exceed $24,500 for 2026.10Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits The $72,000 annual additions cap, by contrast, applies separately to each unrelated employer’s plan.
A spouse who works in the business and receives legitimate compensation for that work is a separate participant with a separate full set of limits, so a couple can potentially double the household total, subject to what compensation actually supports.2Internal Revenue Service. One-Participant 401(k) Plans The spouse’s employer contribution is calculated on their compensation using the same 25% or effective 20% rule that applies to yours.