Tax Gross-up 

Withholding and payroll taxes are required for all reimbursements of expenses not deductible or excludable as moving expenses, such as mortgage points, even if they are otherwise deductible. Generally, withholding is required at the time of the reimbursement, and the withheld taxes must be reported to IRS and deposited by the employer within specified periods.

Because reimbursements or payments of nondeductible moving expenses increase the employee’s taxable income, the employee will pay more tax and lose part of the benefit of the payment or reimbursement. Most employers alleviate this impact to some extent by paying the employee an additional amount to help with the tax liability. This tax assistance usually is referred to as "gross-up." The term refers to the fact that the employee is paid a larger gross amount so that the net benefit, after taxes, will approximate the moving expenses. The gross-up payment itself also is taxable to the employee and subject to withholding and payroll tax. Therefore, to fully tax protect the employee, the gross-up must itself be "grossed up," and the gross-up of the gross-up must be grossed up, and so on.

The foregoing is intended as general information only. Regarding your specific situation, Worldwide ERC® suggests that you consult with your own tax or legal advisor as appropriate.

For reprint information contact: GovernmentRelations@WorldwideERC.org