What does it mean to "gross up" an employee's paycheck?

To "gross up" an employee's paycheck means to adjust the gross pay in a way that ensures the employee receives a specific net pay after deductions for taxes and other withholdings. This process is often utilized when an employer wants to provide an employee with a certain amount of take-home pay, for example, in the case of bonuses or relocation expenses, where the employee needs to have a specific amount remaining after taxes are deducted.

In this context, the employer calculates the gross pay that must be paid to the employee so that after all applicable taxes are withheld, the desired net pay amount is achieved. This method ensures employees can plan their finances accurately and receive the intended compensation without being adversely affected by tax deductions.