An Executive Bonus Plan (alias Section 162 plan), allows a business to provide personally owned life insurance as a tax-deductible fringe benefit to select key employees.

If the benefit is for a non-owner employee, an executive bonus plan is appropriate for all business forms, including professional corporations, partnerships and LLC’s.

Note: This type of plan does not offer any tax benefit for business owners if the business is an S-Corp, partnership or LLC taxed as a partnership.

Advantages of this plan includes but not limited to:

  • Employer decides who participates and how much of a bonus each employee will receive.
  • Bonus dollars are tax-deductible to the company as compensation to the key employee.
  • Simple to adopt with no IRS approval required.
  • Premiums are reported as “other compensation” on W-2 and are subject to FICA and FUTA taxes.
  • The key employee will own and control the policy and will have access to the riders, potential cash value growth and death benefit that make up the permanent life insurance policy.
  • Death benefit is paid to the insured’s beneficiaries income tax-free.