The Executive Bonus Plans allows a corporation to provide needed life insurance protection for the selected employees on a tax-deductible basis for the employer. The employer has total discretion as to the selection of employees who participate in the plan, which may include stockholder employees and non-stockholder employees.
Under the executive bonus plan, the employee purchases and owns the permanent life insurance policy, and then enters into an agreement with the employer. The employee pays the entire premium on the policy to the insurance company and attributes those payments to the employee as "other compensation" on the employee's W-2 statement. This compensation is subject to income and Social Security (FICA) taxes as well as the Federal Unemployment (FUTA) tax.