Gross-Up

Meaning & Definition

Gross-Up

Gross-up refers to a financial adjustment made to a payment or a financial transaction to cover the taxes that the recipient would be required to pay on the amount. Gross-up is often used in situations like employer-provided benefits or when companies want to compensate employees for tax liabilities incurred due to specific payments, such as bonuses or relocation expenses.

> Back to HR Glossary

Frequently Asked Questions (FAQ's)

  1. What is meant by grossing up of interest?

    Grossing up of interest refers to the process of adjusting the stated or nominal interest rate on a financial instrument to account for taxes. When interest income is subject to taxes, the grossing-up calculation involves increasing the nominal interest rate to compensate for the taxes that the recipient will have to pay on the interest earned.

    For example, suppose an individual earns interest on an investment but must pay taxes on that interest income. In that case, the grossing-up calculation adjusts the interest rate to ensure that after-tax income meets a certain target or expectation.

  2. What comes in gross?

    Gross typically refers to the total or whole amount before any deductions. In financial terms, gross income includes all earnings before taxes and other deductions are taken into account.

  3. How do I convert net to gross?

    To determine the gross value, you need to:

    • Convert the tax from the net rate from a percentage to a decimal number, e.g., 12% = 0.12.
    • Multiply the tax rate by the net price.
    • Add the result to the net price.
    • You've obtained the gross value by applying the tax to the net value.

    The formula: Gross pay = net pay / (1 - tax rate)

  4. How do I gross up a net amount in Excel?

    • Enter cell A1's starting value.
    • In cell B1, enter the percentage that you wish to use to increase the value.
    • To determine the grossed-up value, use the formula =A1*(1+B1).

  5. What is grossing up dividends?

    Grossing up dividends involves adjusting the stated dividend amount to account for taxes. It ensures that recipients receive a dividend amount that, after tax deductions, meets a predetermined target.

  6. What is a gross example?

    A gross example is an amount or situation that is presented in its total or unadjusted form, without any deductions or adjustments. For instance, gross income refers to total earnings before taxes or deductions are subtracted.

  7. What is net vs gross?

    Net and gross are terms used to describe amounts before and after deductions or adjustments. Gross refers to the total or whole amount before any deductions. For example, gross income is the total earnings before taxes or other deductions are taken out.

    Net is the amount remaining after deductions. Net income is the income left after subtracting taxes and other deductions from the gross income.

  8. What is net vs gross CTC?

    Net CTC (Cost to Company) is the total compensation an employee receives after deducting statutory and non-statutory deductions, such as taxes, provident fund contributions, and health insurance premiums. It represents the actual take-home pay.

    Gross CTC, on the other hand, is the total cost incurred by the company for employing an individual. It includes the employee's salary and all benefits before deductions. Gross CTC helps companies understand the complete financial impact of employing a person.

  9. What is a gross fee?

    A gross fee is a total or unadjusted fee amount before any deductions or expenses. It represents the full amount charged for a service or transaction before considering taxes, commissions, or other deductions.

Unleash the true potential of your workforce

See Darwinbox in Action