To gross up a number, divide the desired net amount by one minus the combined tax rate expressed as a decimal. If you want an employee to take home $5,000 after a combined 30% in withholdings, you divide $5,000 by 0.70, which gives a gross payment of about $7,143. The formula is simple; the work is in picking the correct rates and knowing when the math needs to be split into pieces.
The Formula
Gross amount = Net amount ÷ (1 − total tax rate)
The logic runs backward from the result you want. You know the net figure the recipient should keep. You know the total percentage that will be withheld. Subtracting that percentage from 1 gives you the decimal share the recipient actually keeps, and dividing the net by that share produces the gross. The formula automatically accounts for the fact that the tax portion of the payment is itself taxable, because it treats the gross as a single pool from which every withholding is drawn at once.
This clean version of the formula works when every tax component is a flat percentage of the gross. That describes most supplemental wage payments — bonuses, relocation reimbursements, taxable awards — because the IRS lets employers withhold federal income tax on those payments at a flat rate instead of running them through the employee’s bracket-based withholding.
Identifying the Right Tax Rates
Before you can use the formula, you need every withholding rate that applies to the payment. For most supplemental gross-ups, three categories cover it: federal income tax, FICA, and state or local taxes.
Federal Income Tax on Supplemental Wages
The IRS allows employers to withhold a flat 22% on supplemental wages like bonuses, awards, commissions, and severance, provided the employee had income tax withheld from regular wages in the current or preceding year. This flat rate was made permanent by the legislation commonly known as the One, Big, Beautiful Bill (P.L. 119-21), which locked in the individual rate structure from the 2017 Tax Cuts and Jobs Act.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide For gross-up calculations, 22% is the number almost everyone uses because it plugs directly into the formula.
FICA: Social Security and Medicare
The employee share of FICA is 6.2% for Social Security and 1.45% for Medicare, totaling 7.65%.2Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Both apply to the grossed-up amount, not just the net, because the IRS treats the entire payment as wages. Whether Social Security should be in your rate stack at all depends on how much the employee has already earned this year, covered below.
State and Local Taxes
State income tax withholding varies. Several states impose flat supplemental rates similar to the federal 22% approach; others require the employee’s regular withholding rate; a handful have no individual income tax at all. Some jurisdictions also require employee-funded contributions for disability insurance or paid family leave, generally under 1.5% of wages. Add whatever applies to your total before running the formula.
A Worked Example
You want an employee to take home exactly $5,000 from a holiday bonus. They have earned $80,000 so far this year (well below the Social Security wage base), work in a state with a 5% flat supplemental withholding rate, and no local taxes apply.
Add up every applicable rate:
- Federal supplemental income tax: 22%
- Social Security: 6.2%
- Medicare: 1.45%
- State supplemental income tax: 5%
The combined rate is 34.65%. Convert to a decimal (0.3465), subtract from 1, and you get 0.6535. Now divide:
$5,000 ÷ 0.6535 = $7,651.11
That is the gross figure you enter into payroll. When the combined 34.65% is withheld, about $2,651 comes off, and the employee keeps the promised $5,000. Drop the state rate for a no-income-tax state and the gross falls to roughly $6,627.
When the Simple Formula Needs Adjustments
Three thresholds can break the one-step calculation. Miss any of them and the employee ends up with the wrong number.
The Social Security Wage Cap
Social Security tax only applies to earnings up to an annual ceiling. For 2026, that ceiling is $184,500.3Social Security Administration. Contribution and Benefit Base Once an employee’s cumulative wages cross that line, no more Social Security tax is withheld for the rest of the year.
If you include the 6.2% in your gross-up formula for someone who has already exceeded the cap, the resulting check will be too large and the employee will receive more than the intended net, because the extra withholding you planned for never gets taken. Check year-to-date earnings first. If the employee is already past $184,500, remove the 6.2% from your total rate. If the grossed-up payment itself crosses the cap partway through, split the calculation: apply 6.2% only to the portion of the gross below the cap, and leave it out for the rest. Medicare’s 1.45% has no cap and always applies.2Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Additional Medicare Tax at $200,000
An extra 0.9% Medicare surtax applies once an employee’s wages exceed $200,000 in a calendar year. The threshold for married couples filing jointly is $250,000, but employers must begin withholding at $200,000 regardless of filing status.4Internal Revenue Service. Questions and Answers for the Additional Medicare Tax If year-to-date wages plus the grossed-up payment will exceed $200,000, add the 0.9% to your total rate for the portion above the threshold. If the employee is already well past $200,000, add 0.9% to the rate for the entire payment.
The 37% Rate Above $1 Million
The 22% flat supplemental rate only applies to the first $1 million of supplemental wages paid to an employee during a calendar year. Anything above that is withheld at 37%, the top marginal income tax rate.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide For a seven-figure gross-up, split the calculation at the $1 million line and apply 37% to everything above it. The jump nearly doubles the income tax component of the gross-up.
When to Stop Doing It by Hand
Any payment that crosses one of these thresholds partway through breaks the single-division approach, because the rate stack changes mid-payment. You can split the calculation manually, but at that point most people switch to payroll software that iterates until the numbers settle. This is one reason employers with large or complex compensation packages rarely gross up by hand.
The Employer’s Hidden Cost
The formula tells you the check amount before withholdings. It does not capture the employer’s full cost. The employer also owes its own 6.2% Social Security tax (up to the wage base) and 1.45% Medicare tax on the entire grossed-up amount.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide In the worked example above, the employer writes a $7,651 gross check, withholds about $2,651 from it, and then owes roughly another $585 in employer-side FICA. The true cost of delivering that $5,000 net bonus is closer to $8,236. Anyone budgeting for gross-ups should build in the employer match, because the formula does not show it.
Reporting the Grossed-Up Amount on the W-2
The full grossed-up figure, not the net the employee takes home, is what goes on the W-2 as wages. The IRS instructions for Form W-2 require the grossed-up total in Box 1 (wages, tips, other compensation), Box 3 (Social Security wages), Box 5 (Medicare wages and tips), and Box 7 (Social Security tips, where applicable).5Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 The tax boxes (Box 2 for federal income tax, Box 4 for Social Security, Box 6 for Medicare) show the withholdings calculated on the grossed-up figure. State wage and withholding boxes reflect the full amount as well.
Reporting only the original net instead of the gross is a common mistake. It understates the employee’s income on the W-2 and leaves the withholdings shown out of sync with what was actually remitted to the IRS, which creates a filing problem for both sides.