Grossing up, also known as a “net-to-gross calculation,” is typically used when an employer wants to make sure an employee receives a specific dollar amount after taxes for a one-time payment such as a bonus, moving reimbursement, relocation assistance, or another taxable fringe benefit. Because these payments are generally treated as taxable wages, the employee may receive less than expected unless the employer increases the gross amount to offset withholding taxes.

How It Differs from Standard Payroll

Under a normal payroll process, you begin with gross wages, calculate applicable withholdings, and arrive at net pay. Grossing up works in reverse. Instead of starting with gross wages, you first decide how much net pay you want the employee to receive, and then you work backward to estimate the gross payment required to produce that result after taxes are withheld. This approach is commonly used for supplemental wage situations where the employer wants to cover some or all of the employee’s tax burden.

The Gross-Up Concept and Calculation

What Is the Gross-Up Rule?

The “gross-up” concept is a payroll practice in which an employer increases the gross amount of a payment to help cover the taxes the employee will owe on that payment. The goal is to ensure that the employee receives a specific net amount after withholding. Employers often use gross-ups for bonus payments, signing incentives, relocation benefits, and other one-time taxable payments.

Although there is no single formal IRS rule called the “gross-up rule,” gross-up calculations are widely used in payroll administration when handling supplemental wages and taxable fringe benefits.

How Do You Calculate a Gross-Up?

A simple way to think about gross-up math is with this formula:

Gross Pay = Net Pay ÷ (1 − Total Estimated Tax Rate)

In practice, the “total estimated tax rate” may include several components, such as:

• Federal supplemental income tax withholding
• Social Security tax
• Medicare tax
• Additional Medicare tax, when applicable
• Hawaii state income tax withholding

For federal supplemental wages, the IRS continues to use a 22% withholding rate for supplemental wages up to $1 million during the calendar year, and 37% for supplemental wages above that threshold. Social Security remains 6.2% up to the 2026 wage base of $184,500, Medicare remains 1.45% on all covered wages, and Additional Medicare tax applies at 0.9% above the applicable threshold. Hawaii also requires state income tax withholding on wages, so Hawaii withholding must be considered in the estimate.

Because Hawaii has a graduated state income tax system, the state portion of a gross-up calculation is more complex than in states with no income tax. Hawaii payroll updates for 2026 also reflect the state’s ongoing income tax cut changes, which can affect withholding outcomes. The calculator above uses an estimate based on Hawaii withholding assumptions, filing status, and current state payroll guidance.

Example of a Gross-Up Calculation

Suppose an employer wants an employee to receive a $700 net payment after taxes. To estimate the correct gross-up, the employer must account for federal withholding, FICA taxes, Medicare, possible Additional Medicare, and Hawaii state withholding. Because Hawaii withholding depends on state rules and employee circumstances, the total withholding rate can vary from one employee to another. That is why many employers rely on payroll software or a net-to-gross calculator rather than trying to estimate the entire amount manually.

The idea is the same regardless of the amount:

1. Start with the desired net payment.
2. Estimate all applicable withholding taxes.
3. Work backward to determine the gross payment needed.
4. Verify that the resulting net pay is close to the intended amount.

Common Scenarios for Net-to-Gross Pay

Incentives for New Hires

A signing bonus can help attract a strong candidate, but taxes may significantly reduce the amount the employee actually receives. A gross-up helps ensure the employee receives the intended net amount after withholding. This can be especially helpful when the employer wants to make the value of the incentive clear and avoid confusion about why the check is smaller than the promised amount.

Commission-Based Pay

Commissions can be substantial, and employees may not realize how much withholding applies when those earnings are paid. A gross-up can be used when an employer wants a salesperson or another commissioned employee to receive a specific after-tax amount tied to performance.

Relocation Expenses

Relocation-related payments are another common gross-up scenario. If an employer wants to reimburse a new hire for moving or transition costs and ensure the employee receives the full intended amount after taxes, grossing up the payment may help accomplish that goal.

Grossing Up a Relocation Payment Example

Let’s say your business hires an employee who must move to Hawaii or relocate within the state to accept the role. To help with the transition, you offer a one-time taxable payment of $5,000 intended to cover moving-related expenses.

If you simply issue a $5,000 taxable payment, the employee may receive much less after federal, FICA, Medicare, and Hawaii withholding are applied. By grossing up the payment, you can work backward to determine the larger gross amount needed so that the employee’s final net amount is still approximately $5,000.

That approach can make the reimbursement more meaningful to the employee while helping the employer account for payroll tax withholding more accurately.

Final Considerations for Grossing Up

Employers should remember that gross-up calculations affect more than just federal withholding. Depending on the payment and payroll setup, the calculation may also involve employee-side Social Security and Medicare withholding, Additional Medicare tax, and Hawaii state income tax withholding. Hawaii employers are generally required to withhold state income tax on wages and to follow Department of Taxation guidance for payroll withholding.

For 2026, Hawaii’s standard deduction amounts increased to $16,000 for married filing jointly, $12,000 for head of household, and $8,000 for single or married filing separately, which is part of the state’s payroll update changes. These updates can affect withholding outcomes, which is one reason estimates may differ based on employee-specific details.

Drawbacks of Mishandling Gross-Ups

If a gross-up is calculated incorrectly, the employee may receive less than intended, and the employer may have to spend additional time correcting payroll. Potential issues include:

• Extra work for payroll or accounting staff
• Employee dissatisfaction when the payment is lower than expected
• Incorrect payroll reporting or withholding
• The possibility of amended filings or compliance issues if errors are not corrected promptly

Get Grossing Up Right

Grossing up a payment, whether calculated manually or with a Hawaii net-to-gross calculator, can help employers ensure that employees receive a specific after-tax amount for special payments such as bonuses, commissions, relocation reimbursements, or other taxable supplemental wages. By accounting for federal withholding, FICA taxes, Medicare taxes, Additional Medicare, and Hawaii state withholding, employers can better estimate the gross payment needed while supporting payroll accuracy.

This calculator is designed to provide a helpful estimate for Hawaii payroll scenarios in 2026. Actual payroll results may vary depending on an employee’s filing status, withholding elections, year-to-date wages, payroll timing, and how the payment is processed. If you need help reviewing a gross-up payment or managing payroll calculations, the Beyond HCM team can help.