Section 162 Bonus Plan

The benefits usually include life insurance policy death benefits as well as cash value accumulations that can be used as a retirement income supplement.

Section 162 bonus plan. What is a section 162 executive bonus plan. A 162 bonus plan is an arrangement where the employer effectively funds an employee s purchase of life insurance through the payment of bonuses to the employee or possibly through direct payment to the issuing carrier. A section 162 executive bonus plan is designed for employers to provide additional benefits to key employees on a selective basis.

The employee acquires and owns all rights in the policy. A 162 bonus plan is an arrangement where the employer effectively funds an employee s purchase of life insurance through the payment of bonuses to the employee or possibly through direct payment to the issuing carrier. The major difference between the preceding plans and a sec 162 plan is that in the case of the latter the company can take an immediate tax deduction for the benefit provided to the employee.

A 162 executive bonus plan allows a business to provide life and or disability income insurance to key executives using tax deductible dollars. The plans get their name from the part of the irs code that allows companies to give special bonus compensation to employees based on their position. The why and how of an executive bonus plan section 162 of the internal revenue code is the section that states that an employer may deduct certain expenses including salary and other compensation that are ordinary and necessary business expenses.

The employee or the employee s irrevocable life insurance trust ilit acquires and owns all rights in the policy.