Bonus Plan Basics

An executive bonus plan (Section 162) is a way for business owners or companies to provide additional benefits to key employees or executives of their choice. The benefits usually include life insurance policy death benefits as well as cash value accumulations that can be used as a retirement income supplement.  With an executive bonus plan, the business can use tax deductible company funds to selectively provide valued benefits to key people.  An executive benefit plan, used effectively, can be a valuable tool to attract and retain key executives.

Here’s How it Works

• The company provides the key executive with a bonus. While the bonus is taxable to the employee, it is a deductible business expense for the company.
• If the bonus is used to purchase a whole life or universal life insurance policy, it can provide an income-tax-free death benefit for the employee’s beneficiaries, or become a source of tax-free retirement income.

Example:

Remember, as a business owner, you can set up an executive bonus plan for yourself as well – so you can enjoy the same tangible benefits as your employees.

Easy to Set Up

As the business owner, you’re in the driver’s seat with executive bonus plans. There are no government reporting costs.  A written agreement is usually not required as you, the employer, have no rights or benefits in the policy.  You decide who will receive the benefit and in what amount.  Tie the bonus to performance and goal reaching.  Start or stop at any time.