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Updated on February 6, 2023
A gross-up is money added to a payment to cover income taxes the recipient will owe. It is most often seen in executive compensation plans.
Companies sometimes pay employees and don’t realize that the check needs to be grossed up to cover taxes when running through payroll. A gross-up can also change the dollar amount that an individual receives. For example, if an employee expects a payment of $10,000 after taxes — the payment can be grossed up once tax is withheld — the employee will net $10,000.
Most of the time, a gross-up is can be used for one-time payments, such as reimbursements for employee relocation expenses or bonuses.
“I will need to run a gross-up to make sure that the company owner will take home $1,000 for their holiday bonus after taxes are taken out.”
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