Quick Answer
A gross-up is when your employer pays extra money to cover your tax liability on a benefit, ensuring you receive the full intended amount after taxes. For example, if you need $5,000 after taxes and you're in the 22% bracket, your employer would gross-up the payment to $6,410 to cover federal and FICA taxes.
Best Answer
Sarah Chen, CPA
Regular employees who might receive gross-ups for bonuses, moving expenses, or other taxable benefits
What is a gross-up payment?
A gross-up is when your employer pays you additional money specifically to cover the taxes you'll owe on a payment or benefit. The goal is to ensure you receive a specific after-tax amount, regardless of your tax bracket.
Think of it as your employer saying: "We want you to have $5,000 in your pocket after taxes, so we'll calculate how much extra we need to pay to make that happen."
How gross-up calculations work
The math behind gross-ups can be complex because the gross-up payment itself is also taxable. Here's the formula:
Gross-up amount = Desired after-tax amount ÷ (1 - Total tax rate)
Example: $5,000 after-tax bonus with gross-up
Let's say your employer wants you to receive exactly $5,000 after taxes, and you're in the 22% federal bracket:
Your total tax rate:
Gross-up calculation:
When employers typically provide gross-ups
Common situations:
How gross-ups appear on your paystub
When you receive a gross-up, your paystub typically shows:
Key factors affecting gross-up calculations
What you should do
1. Understand the terms: Ask if gross-ups are included in job offers or benefit packages
2. Check the math: Verify that your take-home matches the promised amount
3. Plan for year-end: Gross-ups can affect your overall tax situation
4. Use our calculator to estimate what gross-up you'd need for different scenarios
Remember that gross-ups are generally at your employer's discretion — they're not required by law except in specific contractual situations.
Key takeaway: A gross-up ensures you receive a specific after-tax amount by having your employer pay the additional taxes, typically requiring 30-50% more than the target amount depending on your tax bracket.
*Sources: [IRS Publication 15](https://www.irs.gov/pub/irs-pdf/p15.pdf), [IRS Publication 15-A](https://www.irs.gov/pub/irs-pdf/p15a.pdf)*
Key Takeaway: A gross-up ensures you receive a specific after-tax amount by having your employer pay extra to cover your taxes, typically requiring 30-50% more than the target amount depending on your tax bracket.
Gross-up requirements by income level for $10,000 after-tax target
| Income Level | Tax Bracket | Combined Tax Rate | Gross-Up Required | Total Company Cost |
|---|---|---|---|---|
| $50,000 | 12% | 22.65% | $12,927 | $22,927 |
| $75,000 | 22% | 32.65% | $14,851 | $24,851 |
| $150,000 | 24% | 34.65% | $15,297 | $25,297 |
| $250,000 | 32% | 42.65% | $17,437 | $27,437 |
| $400,000+ | 37% | 47.65% | $19,103 | $29,103 |
More Perspectives
Marcus Rivera, CFP
High-income employees who face steeper gross-up costs due to higher tax brackets
Gross-ups are more expensive for high earners
High earners face significantly higher gross-up costs due to higher federal tax brackets and potential state taxes. What costs a company 30% extra for a middle-income employee might cost 50-60% extra for a high earner.
Example: High earner gross-up calculation
For an executive earning $300,000 wanting $10,000 after-tax:
Tax rates:
Gross-up needed: $10,000 ÷ (1 - 0.4895) = $19,588
The company pays nearly double the intended amount to deliver $10,000 after taxes.
Strategic considerations for high earners
Common high-earner gross-up scenarios
1. Stock option exercises: Covering AMT and ordinary income taxes
2. Golden handcuffs: Retention payments with gross-ups
3. Executive perks: Company car, club memberships, financial planning
4. International assignments: Covering tax equalization costs
Key takeaway: High earners face gross-up costs of 50-60% above the target amount, making these arrangements expensive for employers but valuable for negotiation.
Key Takeaway: High earners require gross-ups of 50-60% above the target amount due to higher tax brackets, making these costly for employers but powerful negotiation tools.
Marcus Rivera, CFP
Employees nearing retirement who might receive gross-ups on severance or retirement benefits
Gross-ups in retirement planning contexts
Pre-retirees often encounter gross-ups in severance packages, early retirement incentives, and benefit conversions. The calculations can be different due to potential changes in tax brackets and FICA treatment.
Special considerations for older workers
FICA implications:
Potential bracket changes:
Example: Severance package gross-up at 62
Retiring employee earning $120,000, offered 6 months severance ($60,000) with gross-up:
If paid in working year:
If paid in retirement year (lower bracket):
Savings: $12,308 less gross-up needed with timing strategy
Common retirement-related gross-ups
1. Early retirement incentives: Ensuring promised take-home amounts
2. Severance packages: Especially for older worker layoffs
3. COBRA premium assistance: Covering health insurance continuation
4. Pension lump-sum conversions: Tax-protected rollover amounts
Key takeaway: Pre-retirees can optimize gross-up timing by considering bracket changes and FICA limits, potentially saving thousands in gross-up costs.
Key Takeaway: Pre-retirees can optimize gross-up timing around retirement to take advantage of lower tax brackets and FICA limits, potentially reducing gross-up requirements significantly.
Sources
- IRS Publication 15 — Employer's Tax Guide - Withholding and Reporting
- IRS Publication 15-A — Employer's Supplemental Tax Guide
Related Questions
Reviewed by Sarah Chen, CPA on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.