Gross Up Methodology (IRS Allowable)
I have what should be a fairly easy question, but I can't seem to reconcile the answer myself. My issue is that the IRS (for the most part) allows two methods of withholding taxes from an employee's wages. First, for regular wages, they allow the methods which are all fairly similar (wage bracket method, percentage method, and some alternate methods) all of which basically come to the same number. The other option is to withholding at the supplemental rate for supplemental wages (22% for FIT < 1M and 37% > 1M).
Now that part makes sense, but what confuses me is when employers gross up taxable expenses for an employee and gross it up at a flat amount (not the supplemental rate but an employer picked amount...say 10%). If an employer is just choosing to cover a gross up of 10% for an employee, it doesn't appear that they are complying with the withholding rules. My only thought is that gross-ups are not subject to the withholding rules as I'm understanding them.
Any help/clarification would be appreciated.