Gross Up for Nonemployee Income

In certain situations, where University and department policies and budgets allow, administrators may wish to “gross up” an income payment to a recipient. The desired outcome may be intended to achieve a specific “net amount”, accounting for required tax withholdings. Gross up payments incur additional expense to the requesting department’s budget, which can be significant.


Reportable income payments processed to or for the benefit of individuals, are reportable for “gross up” amounts paid. Depending on income type and payment circumstances, tax withholding rates can vary between 5% and 30%. Generally, nonresident alien students and scholars often incur a 14% or 30% rate on most nonemployee income types. However, if an individual later claims a tax treaty exemption or has a change in their tax status, they may be determined eligible for a refund of tax withholdings, potentially receiving the entire “gross amount” paid to them.


Before processing a gross up income payment, departments are encouraged to first contact Nonresident Alien Tax Compliance (NRA Tax) at 617-495-8500 ext. 5, to inquire about any potential taxes and withholding rates. NRA Tax regularly receives updates submitted by foreign individuals that can change an individual’s tax circumstances (e.g. tax treaty claimed, update tax status to resident alien, immigration status change, etc.). These updates can also result in an individual being eligible to receive the full gross amount paid to them on certain income, which must be considered as an acceptable possibility if a department utilizes the gross up process.

 

EXAMPLE SCENARIO TO CALCULATE “GROSS UP” AMOUNT: How do I “gross up" a payment so the "net amount" of $500 is received by the recipient after a tax withholding of 30%?
 

STEPS

DESCRIPTION

NOTES FOR CALCULATIONS OF EXAMPLE

 

 

1

Determine withholding tax rate

Confirmed that payment is expected to be taxed at 30% rate

 

2

Calculate tax rate difference from 100%

100% – 30% = 70% rate difference, or 0.70

 

3

Divide desired “net amount” / rate difference %

$500 (desired net amount) / .70 (rate difference %) = $ 714.29 (gross up amount to process payment)

 

4

Double check your calculations for gross-to-net payment

$714.29 x 30% = $214.29 (anticipated tax withholding)

$714.29 - $214.29 = $500 (desired net amount for payment)

         

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