Do you want to pay someone a bonus based on what he will receive after taxes are deducted? What if you agreed to reimburse an employee for moving expenses, but didn't want her to pay taxes on the reimbursement? A tax gross-up calculation figures the gross amount that would need to be paid to achieve the desired check amount after taxes are deducted.

- Skill level:
- Easy

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## Instructions

- 1
Use a similar transaction to calculate the tax rate. For a sales transaction, take the tax charged and divide it by the final cost (equivalent to the amount you want to gross up). Write down or save this number to be used in Step 2. For a payroll transaction, such as a bonus, calculate the tax rate for all taxes applied to the employee's check.

- 2
Subtract the tax rate, calculated in Step 1, from 1.00. If you are using a contractual rate, convert it into the decimal equivalent before doing this calculation. For example, 0.165 is the decimal equivalent of a 16.5 per cent tax rate. In this example, the answer for Step 2 is 0.835, or 1.00 minus 0.165. Write down or save this number to use in Step 3.

- 3
Divide the amount you want to gross up by the answer from Step 2. When an employee is paid this amount and taxes are deducted, his check will be within a few cents of the target amount.

#### Tips and warnings

- This calculation can be used to estimate the gross amount of payroll that will give a specific amount net of--after deduction of--payroll taxes. It should only be used for estimation purposes because the actual calculation will yield a check amount that may be a few cents different from the target amount.