This gross-up calculator is designed to help you figure out how much you need to pay an employee if you want them to take home a specific amount of money after taxes are withheld.
When you calculate take-home pay for your employees, you typically take their gross salary (which consists of all the money they’ve earned), then withhold their payroll taxes and write a check for the resulting net pay amount. Pretty standard and familiar, right?
Grossing up is just the opposite. First, you determine what you want your employee’s net pay to be, then work your way backward to figure out gross pay. Grossing up (which is also known as a “net-to-gross calculation”) is usually done to ensure a staffer receives a specific amount of money for special one-time payments such as bonuses or relocation expenses.
It may sound a little complicated, but we’ll take care of the math for you. All you have to do is enter the amount of net pay your want your employee to receive and some details about their withholding preferences from their W-4 form. Then we’ll do the math what gross pay should be.
Want to know more? Let’s dive a little deeper into gross-up calculations with a simple example.
Say your small business is located in Southern California, and you really want to hire Jane, who lives in Northern California. To get her to take the job, you offer to pay a one-time signing bonus to cover her $5000 moving expenses as an incentive for joining your company.
That $5,000 bonus is technically taxable as a fringe benefit, so paying Jane a gross wage of $5,000 will mean she only takes home $3,750 after her 25% income tax rate is applied. Meanwhile, she still has to pay her movers $5,000, so she would be short $1,250.
To remedy the situation, you can gross up Jane’s bonus check. You work backward to come up with the gross-to-net pay calculation and divide $5,000 by 75%. As a result, Jane’s gross signing bonus comes out to $6,666.67. Jane is happy because she receives the full $5,000 to pay her movers. You’re happy because you’ve convinced Jane the rockstar to join your small business.
While these examples present some pretty simple math, remember that you should be careful when calculating a gross-up for payroll. Get those net numbers wrong, and your employee could wind up owing Uncle Sam some taxes in April. You also have to cover payroll taxes on these one-time bonuses or incentives, so you’ll want to be sure you’re getting your calculations correct for everyone’s sake.