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Gift Cards

Our company gives out $100 gift cards for special quarterly achievement bonuses. The company wants to pay the taxes for the employees. What do you suggest would be a standard gross up amount to accomplish this?

First off, kudos to you for being an awesome employer.

Grossing up a check refers to an employer reimbursing employees for the taxes paid on a specified portion of their income, in this case a bonus. There are two main ways to calculate the gross up.

The most commonly used method is a flat standard percentage, usually 25%. So, if an employee is to receive $100, the gross up amount would be $125. This method is simple, straightforward, and allows for administrative convenience since the same percentage is used for all employees. However, using a flat rate is not going to always be beneficial to either the employer or employee.

Another more specific method takes in to account an employee’s filing status and exemptions.  The calculation itself is fairly straightforward: 100% – Tax % (federal/state/local) = Net%. Then, Payment (Bonus) / Net% = Gross amount of earnings. Obviously, this method is more accurate but it’s time consuming.


This entry was posted on Thursday, August 18th, 2016 at 1:54 pm and is filed under
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