Three Forms of Tax Gross-Up
- Simple Gross-Up: Using this method, you can reimburse or pay employees the amount of their relocation benefits package, plus a fixed percentage designed to cover all or most of the taxes. Depending on the employee's tax bracket, this might be an extra 28 percent, 30 percent or even 35 percent. Because the grossed-up funds are also taxable, employees may not break even, but it will be close.
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- The Inverse Method: This method of grossing up relocation benefits also takes into account the grossed-up amount, so employees have less of a tax liability following their move.
- The True Up Method: Deemed the most accurate method of gross-up by CPAs and corporate relocation firms, this method calculates tax gross-up at the time the relocation benefits are administered and again at year's end. Any discrepancies can be corrected by adjustments on the employee's W-2, resulting in more accurate reimbursement and tax payments. Typically, a CPA or your full-scale relocation management company (RMC) will handle tax gross-up if it's calculated in this manner.
Benefits of Tax Gross-Up for Relocating Employees
Retention rates following a move hinge strongly on a relocating employee's satisfaction with the moving process. Grossing up taxes makes sure employees are compensated accurately for their moving expenses, without adding to their tax liability in April. Valued employees work harder and better, and grossing up taxes on relocation packages is one way to show employees that you value their contributions during a relocation.
Illustration by Kena Ravel