Grossing Up Sales Spiffs

Are you talking about reporting, forecasting or other? Could you add a little color to the situation?

I am talking about is there a particular percentage one would use across the board for any sales person being awarded a spiff. For example, if XYZ Company awarded 7 trips to Aruba which costs $3,000 to various folks who are in different states, different tax brackets, some already through the FICA threshold; does one just use the SAME gross-up on reporting in payroll to compensate them for the taxable benefit or does one, from a best practice perspective, individualize it? Thank you.

Because of the potential differences in state income tax rates, I'd individualize the gross up. But I'd also not over worry, because a 1% error is only $30 and that's peanuts compared to the benefit of the spiff IMHO>

Simply award the sales people a bonus of $3K or whatever the trip is worth via payroll and let them go to Aruba or whereever they want! Trying to gross up the spiff with some arbitrary % is too much brain surgery in my opinion and not worth the time involved vs. any real or perceived value.

First, make sure you have a policy in place for such awards. Salespeople work hard no doubt, however per IRS rules all consideration (income, awards, value of gifts) is taxable. Either gross up their payout and pay cash so they can do what they want with it (Aruba or otherwise), or you would need to report the value of the trip as income and tax would apply. There's no way to beat Uncle Sam.

Anonymous,

Thanks for the clarification:
I see the benefit in the "Trip to Aruba" vs. cash (my sales folks like the cash, but it doesn't have the "GlenGarry GlenRoss" ring to it). Also, it forces them to take a break, which these days is probably a good thing.

Assuming you're using an outside provider (ala paychex) doing this for 7 folks on an individualized basis isn't an extraordinary amount of work at the outset....*but*, you'd also have to take into account FICA through the end of the year. What if this effectively pushed someone over the FICA limit? What if in the end, they'd be over the limit anyhow so the gross-up would be superfluous? What if they've got outside income that affects their bracket....etc and so on. You can't get this right, and the small state variations are relatively irrelevant.

Summarizing the guidance above that aligns with my approach:
-Have a policy, documented, including what gross-up means.
-Have it be flat: if they want to move to Nevada to save on tax...so be it.
-Nancy covers FICA/Medicare above; I would go with a rate of something like 25% (not dissimilar from how options are treated) to capture the likely blended impact of their marginal tax rate, and not worry past that.