Tax Gross-up

1. A contract clause that requires a borrower or issuer to make an additional payment to a lender or noteholder to compensate for the imposition of a tax, such as a withholding tax.
2. For example, if a borrower owed a lender an interest payment of $10 but was required to withhold $5 in tax (thus giving the lender a net payment of $5), a tax gross-up would require the borrower to pay the lender $20. This would result in a withholding tax of $10 but also a net payment of $10 to the lender, which was the amount the lender contracted to receive.

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