Sometimes employers want to give an employee a specific net pay amount—for example, a bonus or a relocation allowance—but taxes still need to be paid. In this case, they need to gross up the amount, meaning they calculate how much gross pay to give so that the employee receives the desired net pay after deductions.

1. What is Grossing Up?

Grossing up means calculating the gross amount of pay needed to result in a specific net amount, after tax and other deductions.

This is commonly used when:

• Paying a net bonus
• Covering relocation or other taxable benefits
• Offering tax-protected allowances

2. The Gross-Up Formula

To gross up, you use this formula:

Gross Pay = Net Pay + Deductions

3. Important Notes

• The total tax rate includes state and local taxes, as well as Social Security and Medicare, if applicable.
• This method assumes all taxes are withheld from the gross amount.
• For exact results, many companies use payroll software to account for varying tax brackets and deductions.

Conclusion

Grossing up ensures that an employee receives a specific net amount after taxes. It's a helpful tool in payroll when offering tax-included bonuses or benefits. By using formulas, employers can budget properly and meet compensation expectations.