Pay the Taxes
Employees expect to pay taxes on their base pay. They are often surprised, however, when they are taxed on a special or spot bonus. Employees expect their cash bonus to be $1,000 as announced, and are surprised when the check is for $720!
They also resent being taxed on noncash awards, although the IRS requires it to be reported as income. The answer: grossing up. As a general rule, a 28 percent federal tax, plus state and local taxes, are added to the fair market value (or cost) of the award and reported as such on W-2 statements. The employer pays the tax as part of the cost of the award. This additional cost is simply part of the investment in awards to reinforce employees for the extra effort.
“The only difference between death ...
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