What is a salary gross-up?

A salary gross-up converts a desired net (after-tax) amount into the required gross (pre-tax) amount. Formula: gross = net / (1 - effective tax rate). Employers use gross-ups when providing taxable benefits (relocation allowance, bonuses, gifts) to compensate employees for the tax cost, ensuring the employee nets a specific target amount.

How do I calculate the gross salary needed for a target net pay?

Estimate the effective tax rate (total tax + CPP + EI as a percentage of gross income) for the target income level and province. Gross = target net / (1 - effective rate). For $70,000 net at 28% effective rate: $70,000 / 0.72 = $97,222 gross. Use the take-home pay calculator to refine the effective rate for your specific province.

What is the dividend gross-up in Canada?

The dividend gross-up is required by the Income Tax Act before including dividends in income. Eligible dividends are multiplied by 1.38 (38% gross-up); ineligible dividends by 1.15 (15% gross-up). The grossed-up amount is included in income; the dividend tax credit then reduces the tax caused by the gross-up, approximating the integration of corporate and personal tax.

Why is the dividend gross-up 38% for eligible dividends?

The 38% gross-up approximates the pre-tax corporate income from which the eligible dividend was paid. Since eligible dividends come from income taxed at the general corporate rate (~26.5%), the gross-up is designed to represent the pre-tax corporate income. The dividend tax credit then returns credit for the corporate tax paid, preventing double taxation.

What is the gross-up for ineligible dividends?

Ineligible dividends use a 15% gross-up (multiplier of 1.15). The lower gross-up reflects that ineligible dividends are paid from income taxed at the lower small business rate (~12%). The corresponding dividend tax credit (9.0301% of grossed-up amount federally) is also lower, consistent with the lower corporate tax already paid.

What is a taxable benefit gross-up?

When an employer provides a taxable benefit (group life insurance premiums, housing allowance, relocation costs) and wants the employee to receive a specific after-tax amount, the employer grosses up the benefit. The employer pays the tax on the benefit's behalf by increasing the benefit amount. Both the original benefit and the gross-up amount are taxable to the employee.

How does relocation gross-up work?

An employer providing $10,000 in relocation allowances may gross up to compensate the employee for income tax. At a 43% marginal rate: gross-up = $10,000 / (1 - 0.43) = $17,544. The employer pays $17,544 (of which $7,544 covers the tax, leaving the employee with $10,000 net). The $17,544 is reported as employment income on the T4.

What is the effective tax rate versus the marginal rate?

The marginal rate is the rate on the last dollar of income. The effective rate is total tax paid divided by total income — always lower than the marginal rate because lower income brackets are taxed at lower rates. Gross-up calculations use the effective rate to determine how much additional gross income delivers the target net amount.

Does a gross-up affect CPP or EI contributions?

Yes. The grossed-up salary is employment income for CPP and EI purposes. CPP contributions are 5.95% of employment income above $3,500 (up to the YMPE of $71,300). EI is 1.64% of employment income up to the MIE of $65,700. If the grossed-up salary already exceeds these ceilings, no additional CPP or EI is triggered by the gross-up.

Can an employer gross up a bonus in Canada?

Yes. Employers sometimes gross up bonuses to deliver a target net bonus. The employer calculates the gross amount needed to produce the desired net after withholding tax (using the bonus method or annualized method). The gross bonus amount — including the tax gross-up — is fully taxable employment income on the employee's T4.

Salary Gross-Up Calculator 2025 — Canada

Work backward from desired take-home pay to required gross salary. Accounts for income tax, CPP, and EI at your marginal rate.

Reviewed by Canadian Money Help Editorial Updated April 24, 2026 Source CRA T4130 — Employers' Guide: Taxable Benefits; ITA s.82 (dividend gross-up)

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A salary gross-up is used in two main Canadian contexts: (1) calculating the pre-tax salary needed to deliver a specified after-tax take-home amount (gross-up for net pay), and (2) the dividend gross-up required by the Income Tax Act before applying the dividend tax credit. This calculator addresses both: the employment gross-up (what salary covers a desired net income) and the dividend gross-up rate for eligible and ineligible dividends.

Quick Answer

To deliver $60,000 net take-home in Ontario in 2025, an employer must pay approximately $84,000-$87,000 gross (depending on other deductions and credits). The gross-up factor = 1 / (1 – effective tax rate). At a 30% effective tax rate: gross = $60,000 / (1 – 0.30) = $85,714. For dividends: an eligible dividend of $1,000 is grossed up to $1,380 (x 1.38) before calculating the dividend tax credit.

Employment Gross-Up Formula

Gross salary needed = Net desired amount / (1 – effective tax rate)

The effective tax rate is not the marginal rate — it is the blended rate (total tax paid divided by total income). For a typical Ontario employee targeting $65,000 net in 2025, the effective combined rate is approximately 24-27%, so gross ≈ $65,000 / (1 – 0.25) = $86,667.

Employers use this calculation when they want to compensate an employee for a tax cost — for example, providing a relocation allowance and grossing up to ensure the employee is not worse off after tax on the benefit.

Dividend Gross-Up (ITA)

Under ITA section 82, dividends received from Canadian corporations must be grossed up before inclusion in income:

– Eligible dividends: actual dividend x 1.38 (38% gross-up)
– Ineligible dividends: actual dividend x 1.15 (15% gross-up)

The dividend tax credit (DTC) then offsets the extra tax created by the gross-up. See the Dividend Tax Credit calculator for the full DTC calculation.

Taxable Benefits and Gross-Ups

Employers who provide taxable benefits (company car, group insurance, housing allowance) sometimes gross up the benefit to compensate the employee for the tax cost. The gross-up amount is itself a taxable benefit — this can create an iterative calculation if not handled carefully. CRA provides guidance on taxable benefit gross-ups in Guide T4130 (Employers’ Guide — Taxable Benefits and Allowances).

Verified Against Source

Dividend gross-up rates are set under ITA section 82. Employment income calculation and withholding are governed by ITA sections 5-6 and CRA T4032 (Payroll Deductions). Taxable benefits and gross-up treatment are described in CRA T4130. Source: canada.ca/en/revenue-agency/services/forms-publications/publications/t4130.html

Frequently asked questions

What is a salary gross-up?: A salary gross-up converts a desired net (after-tax) amount into the required gross (pre-tax) amount. Formula: gross = net / (1 - effective tax rate). Employers use gross-ups when providing taxable benefits (relocation allowance, bonuses, gifts) to compensate employees for the tax cost, ensuring the employee nets a specific target amount.
How do I calculate the gross salary needed for a target net pay?: Estimate the effective tax rate (total tax + CPP + EI as a percentage of gross income) for the target income level and province. Gross = target net / (1 - effective rate). For $70,000 net at 28% effective rate: $70,000 / 0.72 = $97,222 gross. Use the take-home pay calculator to refine the effective rate for your specific province.
What is the dividend gross-up in Canada?: The dividend gross-up is required by the Income Tax Act before including dividends in income. Eligible dividends are multiplied by 1.38 (38% gross-up); ineligible dividends by 1.15 (15% gross-up). The grossed-up amount is included in income; the dividend tax credit then reduces the tax caused by the gross-up, approximating the integration of corporate and personal tax.
Why is the dividend gross-up 38% for eligible dividends?: The 38% gross-up approximates the pre-tax corporate income from which the eligible dividend was paid. Since eligible dividends come from income taxed at the general corporate rate (~26.5%), the gross-up is designed to represent the pre-tax corporate income. The dividend tax credit then returns credit for the corporate tax paid, preventing double taxation.
What is the gross-up for ineligible dividends?: Ineligible dividends use a 15% gross-up (multiplier of 1.15). The lower gross-up reflects that ineligible dividends are paid from income taxed at the lower small business rate (~12%). The corresponding dividend tax credit (9.0301% of grossed-up amount federally) is also lower, consistent with the lower corporate tax already paid.
What is a taxable benefit gross-up?: When an employer provides a taxable benefit (group life insurance premiums, housing allowance, relocation costs) and wants the employee to receive a specific after-tax amount, the employer grosses up the benefit. The employer pays the tax on the benefit's behalf by increasing the benefit amount. Both the original benefit and the gross-up amount are taxable to the employee.
How does relocation gross-up work?: An employer providing $10,000 in relocation allowances may gross up to compensate the employee for income tax. At a 43% marginal rate: gross-up = $10,000 / (1 - 0.43) = $17,544. The employer pays $17,544 (of which $7,544 covers the tax, leaving the employee with $10,000 net). The $17,544 is reported as employment income on the T4.
What is the effective tax rate versus the marginal rate?: The marginal rate is the rate on the last dollar of income. The effective rate is total tax paid divided by total income — always lower than the marginal rate because lower income brackets are taxed at lower rates. Gross-up calculations use the effective rate to determine how much additional gross income delivers the target net amount.
Does a gross-up affect CPP or EI contributions?: Yes. The grossed-up salary is employment income for CPP and EI purposes. CPP contributions are 5.95% of employment income above $3,500 (up to the YMPE of $71,300). EI is 1.64% of employment income up to the MIE of $65,700. If the grossed-up salary already exceeds these ceilings, no additional CPP or EI is triggered by the gross-up.
Can an employer gross up a bonus in Canada?: Yes. Employers sometimes gross up bonuses to deliver a target net bonus. The employer calculates the gross amount needed to produce the desired net after withholding tax (using the bonus method or annualized method). The gross bonus amount — including the tax gross-up — is fully taxable employment income on the employee's T4.

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Methodology

Employment gross-up: gross = net / (1 - effective tax rate). Effective rate = (income tax + CPP + EI) / gross income. Dividend gross-up per ITA s.82: eligible x 1.38, ineligible x 1.15. Taxable benefit gross-up: base benefit / (1 - marginal rate) for iterative approach.