These are probably the cotyledons which are not true leaves. It's part of the seed and acts to give energy to the plant. It's natural for them to start yellowing up, shriveling and falling off as the plant matures and true leaves are developing.

These are true leaves and not cotyledons. The Cotyledons fell off first but now the first set of true leaves are falling off as well.The yellowing leaves seem to be turning yellow starting from the tip of the leaves toward the stem, and there are small green dots along the veins.

Yellowing of the bottom leaves - be they cotyledons or true leaves - is almost always a sign of excess watering. Too wet soil causes root rot. Given your container mix - "store bought top soil with homemade compost (leaves and grass)" - too much water/too wet soil would seem very likely. Potting soil also compacts making good drainage problematic. This the standard recommendation to use a soil-less potting mix instead.

Have you fed them anything else? Compost unless it was well finished humus won't provide much in the way of nutrients.

Dave

I just added some plant-tone. If it is indeed too much water, is there anything I can do besides waiting for it to dry out naturally?

Well with that additional information, Dave's assessment is right on. It's lacking in nutrients due to overwatering. Try setting it on paper towels to help drain off the excess water

If it is indeed too much water, is there anything I can do besides waiting for it to dry out naturally?

Unless you want to transplant them again to a drier mix, yes you just have to let them dry out and cut your watering in half. Too little is much better than too much. You may lose some of the leaves that have yellowed but the new growth should be ok.

Dave

Do you think planting them out in raised beds at this point will do more harm than good? I have seen many people planting out their peppers around here and the peppers seem to do just fine.

ikea

I think it's still a bit early to plant out peppers. You need to wait until the soil is around 70 degrees for the best time. (One of those inexpensive oven thermometers will test the soil temp fine.) I'm a bit warmer than you and I'm still waiting, too.

Your peppers will do fine if you just start "less-watering" now, and plant them outside, after hardening them off, a little later in the spring.

Ok. I will just stop watering them and see what happens. Thanks so much for all the help from everyone!

Just want to update everyone on my over watered tomato seedlings. I took the advice and stopped watering them immediately. Some of the plants continued to have more yellowing on the lower leaves but at a much slower pace. I planted them out in the garden about 2 weeks ago, and they are doing great!! I made sure to strip off the lower yellow leaves and planted them deep. Now they are all very strong healthy green tomato plants, even with a few cool nights. Thanks for everyone's help!