Let’s say you give a $100 bonus, via gift card, as a Thank You. You can gross up their bonus by determining the supplemental tax rate, Social Security and Medicare taxes, and state and local income taxes.
Let’s say your business is in a state that doesn’t have state or local income taxes. Add together the tax rates of 22% (federal income tax) and 7.65% (Social Security and Medicare taxes). Your total is 29.65%.
22% + 7.65% = 29.65%
Now, turn 29.65% into a decimal: 0.2965. Subtract this amount from 1. This gives you .7035.
1 – 0.2965 = .7035
Next, divide the amount you want to give the employee, $100, by 0.7035.
100 / 0.7035 = 142.15
To give your employees a gift card with a value of $100, you would need to record it as $142.15 and withhold $42.15 for taxes.