Gross-up
The practice of increasing a payment to cover the recipient's tax liability so net pay equals an intended target amount.
A gross-up is the practice of increasing a payment to cover the recipient's tax liability so that the net amount equals an intended target. The most common small-business example is a relocation reimbursement: if you want the employee to receive $10,000 net for a relocation, you have to pay them roughly $13,500–$14,500 gross (depending on the employee's marginal federal and state tax rates plus FICA) so that after withholding the employee nets $10,000.
The gross-up calculation is iterative: estimate the target net, compute the tax on the gross-up amount, recompute the net, adjust until the net matches the target. Most modern payroll software has a gross-up calculator built in. Manual gross-ups are feasible but error-prone — get within 1–2% on the first iteration and the employee complains either way.
Gross-ups are taxable wages to the employee and deductible to the employer, with the same FICA, FUTA, and state tax treatment as regular wages.