grossups

Gross-ups, or grossups, refer to calculations used to increase a payment so that the recipient receives a specified net amount after taxes and other deductions. They are common in payroll, compensation packages, and employee reimbursements where an employer aims to preserve the intended value of a payment after tax impact.

How they work can vary, but the basic idea is to determine the gross amount needed so that, after applying applicable tax rates and withholdings, the net amount equals the target. In simple terms, gross = net / (1 − tax rate). When multiple taxes or deductions apply, or when marginal tax rates shift with income, calculations may require iterative or jurisdiction-specific methods to ensure the correct net result.

Common contexts for gross-ups include bonuses, relocation or expatriate allowances, sign-on payments, and severance, where the employer wants the employee to receive a predetermined net sum. Gross-ups are used to mitigate the tax burden on such payments or benefits, maintaining the intended economic value of the compensation.

Considerations and impacts include tax compliance and administrative complexity, potential implications for payroll tax and fringe benefits treatment, and the overall cost to the employer. In some jurisdictions, gross-up payments themselves may be treated as taxable income to the employee, or subject to different withholding rules. Employers should assess tax rules, non-discrimination policies, and consult tax professionals when planning gross-up arrangements. Example: to deliver a net 5,000 with a 25% tax rate, the gross payment would be 5,000 / (1 − 0.25) = 6,667, with about 1,667 withheld in taxes.