How to Gross-Up a Payment

Learn how to gross-up taxable reimbursements so that the employee nets a particular amount after tax is withheld.

A department can choose to “gross-up” a payment to cover the tax burden for a taxable reimbursement. If the employee is promised $5,000, the payment can be grossed up so that after tax is withheld, the employee will net $5,000. 

Steps:

1. Determine total tax rate by adding the federal and state tax percentages. For example, if the federal tax rate is 22% and the State rate is 5%, the total tax rate is 27%.
2. Subtract the total tax percentage from 100 percent to get the net percentage. In the example above, the net tax percentage is 73 percent (100-27).
3. Divide desired net by the net tax percentage to get grossed up amount. Example: 5,000/.73 = 6,849.32 (rounded).
4. Result: If department issues a payment of $6,849.32, the employee will net $5,000.