Frequently Asked Questions (FAQs)
When should employers consider grossing up compensation?
Employers implement gross-ups to cover an employee's tax liabilities on specific payments. This is typically used for relocation expenses, bonuses, or stipends when the employer aims for the employee to receive an exact net amount.
How do I determine the total tax rate for a gross-up calculation?
The total tax rate is the sum of all applicable taxes, including federal income tax, state income tax (if applicable), Social Security (6.2%), and Medicare (1.45%). Be sure to check for any additional local tax obligations that may apply.
Are gross-up amounts considered taxable income?
Yes, gross-up amounts are taxable and must be reported as part of the employee’s earnings. The employer pays the additional taxes, but the IRS still considers the grossed-up compensation part of the employee’s total income.