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- Title
EXECUTIVE BONUS -- PART I.
- Authors
Landsberg, Richard D.
- Abstract
This article provides information on executive bonus plans and executive compensation. An executive bonus plan involves the purchase of a life insurance contract on the life of an employer-selected key executive and the payment of premiums on that policy by the employer in the form of a bonus. The contract of insurance is owned from the outset by the executive or by a third party. The executive names the beneficiary of the contract and has all the rights of ownership in the contract. There is no sharing of any incident of ownership with the employer. The executive bonus plan is so named because the employer can deduct the amount of the bonus to the covered executive under Section 162(a)( 1) of the U.S. Internal Revenue Code of 1986, as amended, which relates to ordinary and necessary business expenses. Mechanically, the employer pays the bonus in the form of premiums sent directly to the insurer. The entire premium paid by the employer under an executive bonus arrangement is charged to the insured as ordinary compensation income and reported on the executive's Internal Revenue Service Form W-2. Each bonus is subject to Social Security and unemployment taxes. The bonused premiums are considered a noncash fringe benefit for withholding purposes.
- Subjects
UNITED States; EXECUTIVE compensation; EMPLOYEE bonuses; LABOR incentives; EMPLOYEE benefits; LIFE insurance; SOCIAL security taxes; WITHHOLDING tax
- Publication
Journal of Financial Service Professionals, 2005, Vol 59, Issue 1, p22
- ISSN
1537-1816
- Publication type
Article