Grossing up payroll

[oceanlovin'ea]

In the past we could use 1.08285% to figure what the gross amount of a person's payroll would be if an employer didn't actually withhold their payroll taxes. In effect the employer paid the payroll taxes for the employee.

Since for this year the social security is only 4.2%, does anyone know what the equation would be to gross up the payroll for 2011?

I wish I knew how that is done.

Linda

[abby]

Tab 23 pg 9

Do you have access to the Deluxe book or online library? There is a worksheet for gross up that might be useful to you there.

[taxxcpa]

Grossing it up

In the past we could use 1.08285% to figure what the gross amount of a person's payroll would be if an employer didn't actually withhold their payroll taxes. In effect the employer paid the payroll taxes for the employee.

Since for this year the social security is only 4.2%, does anyone know what the equation would be to gross up the payroll for 2011?

I wish I knew how that is done.

Linda

The old combined SS & MCare was 7.65 and the new combined rate will be 2% less or 5.65%.
To gross it up, divide the pay by (1-.0565) or .9435. which represents the net pay
1/.9435 = 1.0598834 which you could use to gross up the pay.

If you paid someone $ 100 and absorbed the tax:
$ 100 X 1.0598834 = $ 105.98835
105.98835 X .0565 = $ 5.9883417 combined SS & MCare.
105.99 -5.99 = 100

[oceanlovin'ea]

Thanks so much taxxcpa. Thanks for the formula. I appreciate knowing how it is figured. I will print this out and keep it in my files.

I bought the 1040 book and the small business book separately this year. I usually get the deluxe, but I know you get a little more information on business returns in the business book so decided it was time to update my library.

Linda

[Burke]

Sooo...., the formula would be: NP / (1.00 - .xxxx) = GP.
Where x equals the FICA Rate, NP = Net Pay and GP = Gross Pay. Correct?

[New York Enrolled Agent]

Sooo...., the formula would be: NP / (1.00 - .xxxx) = GP.
Where x equals the FICA Rate, NP = Net Pay and GP = Gross Pay. Correct?

There is actually a Rev Procedure (81-48) which gives the formula. Your formula agrees with the procedure with different "variables".

W = Total Fica Wages
S = Stated Pay
R = Rate of Fica Tax

W = S / (1 - R)

[Brian EA]

Here is my way of doing the calculation.
Net Pay is 100% - 5.65% = 94.35%.
for example. Net pay is $500.
Gross = 500/94.35% = 529.94.
529.94 x 5.65% = 29.94
Net pay = 529.94 - 29.94 = 500

[JG EA]

No one has mentioned withholding in these formulas.

Say you are doing a bonus. It is a set amount. "I want to issue a bonus check to my employee of $1000 even".

We must either deduct a straight percentage of 25% or add the extra wages to the other wages within the current pay period to get the correct withholding table amount.

So if the 25% would be more I approximate what the grossed up wages will be (since it will be sliding) fix a federal (and state if required) percentage.
So the formula is 100 minus federal % minus 4.2% minus 1.45% minus state % (if required) = percentage. So if all the % add up to say 30.65 the $1000 is divided by 69.35 =$1441.96 wages. This will then net out to the desired amount.

See pub 15 page 59 where it show that withholding is required on extra checks.

[appelman]

Don't forget that things are different for household employers.

For household employers, gross-up is only for income tax, not for FICA. So for them the 2010 factor is 1.0565, and SS and Medicare are figured on the amount BEFORE gross-up. (See Schedule H instructions.)

[taxxcpa]

Grossing up including income tax WH

1= net pay factor
.25=Fed Income tax WH
.042 = SS+MCare WH

1-(.25+.042) = .708

Net pay = $ 100

$ 100/.708 = 141.25
Gross pay = 141.25
25% WH = 35.31
4.2% SS = 5.93

Net pay = [$ 141.25 - (35.31+5.93)] =100.01 (one cent rounding error)

You could eliminate the rounding error by withholding an extra penny.