Example

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/FICA limit, the calculation would be:

A.	$4,000
	1 0.22 (supplemental W/H rate) 0.062 (OASDI) 0.0145 (HI)

B.	$4,000	= $5,685.86 grossed-up bonus
	0.7035

C.	Gross bonus amount	$5,685.85*
	Federal Income Tax withheld	1,250.89
	OASDI tax withheld	352.52
	HI tax withheld	82.44
	Take-home bonus check	$4,000.00

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

*Need to subtract $0.01 from $5,685.86 in order to arrive at $4,000.00 (due to rounding).

Homework:

Harrington Company is giving each of its employees a holiday bonus of $250 on December 13 (a nonpayday). The company wants each employee's check to be $250. 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 3.01% (besides the other payroll taxes)? You may need to add one penny to the gross so that net bonus exactly equals $250.00. $__________

b. What would the net amount of each bonus check be if the company did not gross-up the bonus? Round your intermediary calculations to the nearest cent. $_______