---
title: Executive Bonus Plans Taxation | Advisor's Resource Company
description: The right benefit plan for you and your employees is important, so keep reading about how taxation affects this plan.
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---

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 May 13, 2020 2:09:00 PM

# Executive Bonus Plans Taxation

![Picture of The Advisors Resource Team](https://blog.advisors-resource.com/hs-fs/hubfs/advisors-resource-company-profile-image-green-white.jpg?width=50&name=advisors-resource-company-profile-image-green-white.jpg) [The Advisors Resource Team](https://blog.advisors-resource.com/blog/author/the-advisors-resource-team)

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What if you could earn a tax break and incentivize your executive employees to remain with your ![executive bonus plans](https://blog.advisors-resource.com/hs-fs/hubfs/2-4%20FB%20Webinar%20Reminder.jpg?width=300&name=2-4%20FB%20Webinar%20Reminder.jpg)business? You need to consider an [executive bonus plan](https://advisors-resource.com/executive-bonus-plans/).

Perhaps you think your business cannot afford this, however, you can easily fund this fringe benefit without breaking the bank. You provide it as a cash value life insurance policy in the executive benefits package. You can use a whole life insurance policy or [indexed universal life](https://lp.advisors-resource.com/indexed-universal-life-insurance)policy to create this bonus plan.

The executive bonus plan has become a favorite due to the nature of it being a non-qualified plan. Compared to qualified plans, it provides less restrictions, making it an attractive choice. 

## Benefits to Your Business

Besides employee retention, you also benefit your business by providing yourself a tax deduction, something offering non-qualified stock options or non-qualified deferred compensation does not do. Under Section 162(a)(1) of the Internal Revenue Code, a business may deduct the reasonable salaries and other compensation of its employees. 

The executive bonus plans based on cash value life insurance are included. Typically, the IRS does not allow a deduction for compensation in excess of $1 million. So, besides helping build company culture and improve employee retention, what benefits do executive bonus plans provide to a business? There are many, including:

1. A recruitment tool that draws new talent
2. A discretionary benefit based on performance or time with the company
3. Provides increased cost-efficiency since only executives earn it
4. Minimal implementation expense and little administrative expenses
5. Requires no IRS approval for a basic plan
6. Requires no ERISA filings
7. Provides immediate income tax deduction
8. plan flexibility provides the business the option to add other incentives

## Benefits to Your Executives

Besides providing so much benefit to the business, you also offer many advantages to your executives. These tangible benefits help your executives in numerous ways including:

1. a typically income tax-free death benefit to their beneficiaries
2. a tax-free supplemental retirement income from the cash value
3. the executive owns the policy, so it remains protected from the business’ creditors

## Bonus Plan Considerations

Before you decide that a bonus plan would be perfect for your business, consider the pros and cons of the situation. Before you add this to your firm’s benefits package, consider the following:

- it requires a consultation with your attorney and your accountant
- each executive receiving the bonus plan must pass the health exam/inquiry and financial underwriting requirements
- the executive can take this portable policy anywhere whether they move to another company or retire
- if the employer fails to pay the annual bonus which pays for the policy premiums, the employee would have to pay out-of-pocket
- the business has no ownership or rights to the policy
- while the employee does pay taxes on the bonus, using a double bonus system provides the money for them to pay the taxes

For more information, [contact Advisor's Resource](https://advisors-resource.com/contact-us/) and let us help you find the right options for your client. Help them retain employees and reduce tax load by using executive bonus plans.

 

## Related Posts

[**Life Insurance For Executive Bonus Plans**](https://blog.advisors-resource.com/blog/life-insurance-for-executive-bonus-plans)

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