WATCH: Gross Up 101

Gross Up is a calculation method used to pay employees an increased gross amount that includes taxes, in order to arrive at a promised or agreed-upon net. 

Most often we think of gross up when paying a bonus -- for example, an employer promises a bonus of $1000, and that’s what they mean for the employees to take home. In this case, the employer will have to pay all of the employees’ taxes, so the gross for the bonus will have to include all tax amounts in order for the net bonus to be $1000. 

But adding tax dollars to the original gross amount -- isn’t that just increasing taxable wage and making this even more complicated? The IRS has approved the Gross Up method so that this never-ending tax cascade does not become a problem! 

However there are other tricky situations that can arise with gross up calculations, and payroll professionals should know how to handle them all. What happens when a gross up bonus takes an employee over a tax threshold like the FICA limit? 
 

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IT Director Rob Taggart, ODTL

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