Example 4-12

GROSSING-UP. Cotter Company wants to award a $4,000 bonus to Donna D'Amico. In addition, it wants the net bonus payment to equal $4,000. Assuming D'Amico is still under the OASDI limit, the calculation would be:

A.	$4,000
	10.25 (supplemental W/H rate)0.062 (OASDI)0.0145 (HI)

B.	$4,000	= $5,939.12 grossed-up bonus
	0.6735

C.	Gross bonus amount	$5,939.13*
	Federal Income Tax withheld	1,484.78
	OASDI tax withheld	368.23
	HI tax withheld	86.12
	Take-home bonus check	$4,000.00

If state or local taxes apply, they must also be included in the formula.

*Need to add $0.01 to $5,939.12 in order to arrive at $4,000.00 (due to rounding).

Mattola Company is giving each of its employees a holiday bonus of $800 on December 14 (a non payday). The company wants each employee's check to be $800. The supplemental tax percent is used.

Nobody has capped for OASDI prior to the bonus check.

a. What will be the gross amount of each bonus if each employee pays a state income tax of 2.8% (besides the other payroll taxes)? You may need to add one penny to the gross so that net bonus exactly equals $800. $

b. What would the net amount of each bonus check be if the company did not gross-up the bonus? $