What Is a Tax Gross-Up?
A tax gross-up or simply, gross-up, is compensation paid to an employee, in addition to his salary, to cover the tax liability for perquisites, or “perks.” Perquisites may include the use of a corporate car or aircraft, relocation expenses, leases, memberships, and insurance. Because the Internal Revenue Service (IRS) views perquisites as other income, employees who receive perks must pay taxes on the fair market value of the goods or services received. Of large United States companies, roughly 77 percent offer tax gross-ups or tax reimbursements. For example, in 2004, Home Depot gave outgoing chief executive officer Robert Nardelli an extra $3.3 million US Dollars (USD)to take care of his personal taxes on various perquisites. In Nardelli’s case these included forgiveness of a personal debt and family travel on the corporate jet.
