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Authoritative Data Source & Methodology

Primary references:

  • IRS Publication 15-T (Federal Income Tax Withholding Methods) — supplemental wage withholding rules (flat rate approach).
  • Social Security Administration (SSA) — annual Social Security wage base (“contribution and benefit base”).

Tutti i calcoli si basano rigorosamente sulle formule e sui dati forniti da questa fonte. Update the Social Security wage base and verify the current federal supplemental rate at the start of each tax year.

The Formula Explained

When all withholding rates are purely proportional (no caps/thresholds), gross-up is closed-form:

\( \displaystyle \text{Gross} = \frac{\text{Net}}{1 - (r_f + r_s + r_l + r_{fica})} \)

Where \(r_f\) is the federal supplemental rate, \(r_s\) the state rate, \(r_l\) local/other, and \(r_{fica}\) the FICA rate. However, Social Security is capped at the annual wage base and Additional Medicare (0.9%) applies only to wages over \$200,000 for withholding. Because of these nonlinearities, this tool solves:

\( \displaystyle \text{Find Gross such that } \text{Net} = \text{Gross} - W(\text{Gross}) \)

by numerical search (bisection), where \(W(\cdot)\) computes federal, state, local, Social Security (capped), and Medicare (including Additional Medicare) on the candidate gross.

Glossary of Variables

  • Target Net Bonus: Desired employee take-home after all selected withholdings.
  • Federal Supplemental Rate: Flat federal withholding percentage for supplemental wages (bonuses).
  • State / Local: State and local withholding rates applied to the bonus.
  • YTD Taxable Wages: Employee wages year-to-date before this bonus; determines space left under the Social Security wage base and exposure to Additional Medicare.
  • Social Security Wage Base: Maximum annual earnings subject to Social Security (6.2%).
  • Additional Medicare: Extra 0.9% withheld on wages over \$200,000 (for withholding purposes).

How It Works: A Step-by-Step Example

Inputs: Target net = \$2,500; Federal = 22%; State = 5%; Local = 0%; Include FICA; YTD wages = \$120,000; SS wage base = \$170,000.

  1. The solver guesses a gross and computes withholdings:
    • Federal: \(0.22 \times \text{Gross}\)
    • State: \(0.05 \times \text{Gross}\)
    • Social Security: \(0.062 \times \min(\text{Gross}, \max(0, 170{,}000 - 120{,}000))\)
    • Medicare: \(0.0145 \times \text{Gross} + 0.009 \times \max(0, 120{,}000+\text{Gross}-200{,}000)\)
  2. It adjusts the gross until Gross − Withholding(Gross) = 2,500.
  3. The result yields the grossed-up bonus and a full tax breakdown.

FAQ

What’s the difference between “gross” and “net” bonus?

Net is what the employee takes home after withholding. Gross is the pre-tax amount the employer pays. Gross-up finds the gross that delivers your required net.

Do I have to use the federal supplemental flat rate?

For supplemental wages (like bonuses), the IRS allows a flat supplemental rate method. Some payroll contexts use an aggregate method based on recent regular wages. This tool implements the flat-rate approach; you can approximate aggregate by adjusting the federal rate.

How does Social Security’s wage base affect gross-up?

Social Security (6.2%) only applies up to the annual wage base. If the bonus would exceed the remaining cap, the portion above the cap is not subject to Social Security, lowering total withholding. The solver handles this automatically using your YTD wages and the wage base value.

When does the Additional Medicare 0.9% apply?

For withholding, employers must withhold an extra 0.9% on wages exceeding \$200,000 in a calendar year. The tool checks whether YTD wages plus the grossed-up bonus cross that threshold.

Can I include other deductions (401(k), local levies)?

You can model local/other withholding with the “Local / Other (%)” field. Pre-tax benefits like 401(k) change taxable wages and aren’t included here.

Will this match my payroll system to the penny?

It will be very close. Minor differences can arise from employer-specific rules, rounding, pay period timing, or aggregate vs flat method.

Which year’s values should I use?

Always update the Social Security wage base and confirm the federal supplemental rate for the current tax year.

Tool developed by Ugo Candido. Content verified by the CalcDomain Editorial Board.
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