My employer added $409.39 to my taxable income (reported in Box 1) which represents $268 for guaranteed term life > $50k (which I am OK with) plus $141.39 which equals the tax withheld on that grossed up amount of $409.39 ($90.07 at the 22% bonus rate, $31.32 FICA at 7.65% and $20 state). I am OK with the $268 being added to my taxable income, but it seems to me that because the $141.39 of taxes was added to the taxable income on my W-2 that I am actually now paying tax on tax. Am I missing something? Thank you.
gross up for taxes is required but you'll notice part of the gross up was for income taxes which will be included in the withholding amounts on your w-2
409.39*.22=90 which = amount of federal withholding included
Why is the gross up required? I did not receive any additional cash to cover the taxes withheld, so I don't understand why my taxable income includes both the $268 for GTL premiums & $141.39 for taxes on $268+$141.39? The company started assessing $13.40/pay period in September and decided in December to "catch-up" the 20 pay periods earlier in the year I as not assessed the $13.40 premium. For the 6 pay periods it was included on my pay stub, there was no gross-up - only the $13.40 was included in my wages and taxes were withheld and the amount deducted from the net pay I received. It doesn't make sense to me that these 20 payments are being treated differently and that only the 6 pay periods are being included in Box 12 of my W2 instead of 26 pay periods since they "caught them all up" in December and I was imputed for a full year. I have searched and searched and all I can find is that a company can gross up income, but everything I read implies that is done because they pay you to cover the tax liability generated. That did not happen here - my net pay was $0 for this transaction.
If wages are taken to cover your part of the insurance
then I can see withholding would be charged. withholding is not a tax.
My brother in law say his company does this for his healthcare, a different benefit, but his W-2 doesn't show the details.
So I can't figure out how much he is paying.
So far, he's been unable to supply me a paystub. !
I agree that tax should have been withheld, but I think the tax should only be on the $268 of imputed income.
I really don't care what they withheld on the stub, but I do care about how much they included in my taxable income. I contend that it should only be the $268 for the GTL, but Box 1 includes the $268 plus the $141.39 tax withheld and added to the $268 GTL premiums. My pay stub looked like this:
Excess Life Imputed Gross-up = $409.39 (the actual imputed income s/be $268 = $13.40 x 20 pay periods)
Taxes Withheld = ($141.39)
Post Tax Deduction = ($268.00)
Net Pay = $0.00
The logic is the same as taxing any income. For example, box 1 wages include the amount withheld for taxes; it is all taxable income and you pay the taxes out of that income. The amount withheld for taxes is just an amount of your income you are making a tax payment with as you go and you get credit for that already made payment on your tax return.