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Gross-up for All Taxes and Deductions

Nina Tchistiakova Updated by Nina Tchistiakova

This gross-up utility should be used when the employer wants to calculate how much gross pay to give an employee so that they end up with a certain amount of net pay. The employer is paying all of the employee's taxes.

To gross up only FICA taxes, see the option for Gross-up for Employer Paid FICA on the Options menu.

To gross up only FICA and SDI taxes, California employers should see Gross-up for Employer Paid FICA and CA SDI on the Options menu.

See also IRS Publication 15-A, Employer's Supplemental Tax Guide, Section 7, Special Rules for Paying Taxes.

Summary

If an employer pays their employee’s taxes without deducting them from the employee’s pay, they must include the amount of the payments in the employee’s wages for federal and state income tax withholding. If the employees are not household or agricultural employees, then this increase in the employee’s wage payment for the employer's payment of the taxes is also subject to employee social security and Medicare taxes. This again increases the amount of the additional taxes the employee must pay. To account for the increase in wages that must be reported, the check must be "Grossed up". The increased pay is called the gross-up amount.

CAUTION: If the employee is a household or agricultural employee, then the social security and Medicare tax (FICA) gross-up amount is not subject to further FICA taxes. It is also not subject to FUTA and state UI taxes (check your state's regulations). This utility does NOT compute according to the special FICA rules for household and agricultural employees when performing the gross up for all taxes. The result is a higher gross-up amount than necessary for household and agricultural employees. The user must decide if this gross-up calculation is appropriate in their situation.
Note that the Options to Gross-up for Employer Paid FICA and Gross-up for Employer Paid FICA and CA SDI do compute according to the special FICA rules.

Procedure

  1. Place the cursor on the check (any field) that you want to gross up. The NET amount of pay received by the employee should be already entered as wages.
  2. Click the Gross-up for All Taxes and Deductions item on the Payroll Grid Options menu.
  3. Click OK to proceed. The program will try to locate the regular wages income item (must be either program provided Salary (Regular Pay (salary)) or Reg Wages (Regular Pay (hourly))) containing the previously entered NET amount. If it finds the appropriate item, the user is asked to confirm the choice. Click YES if the displayed Income Item is correct.
  4. The program will gross-up the wage field until the NET field equals the desired net amount. This is an iterative process so the cursor may flash for several seconds as the calculations are performed. You are done

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