Section 162 Plan

A 162 executive bonus plan allows a business to provide life and or disability income insurance to key executives using tax deductible dollars.

Section 162 plan. Here s how it works. 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. How to identify the expanded group of employees who are covered by new section 162 m.

The employee acquires and owns all rights in the policy. The employee or the employee s irrevocable life insurance trust ilit acquires and owns all rights in the policy. Section 262 however provides that no deduction is allowed for personal living or family expenses.

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. 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. 1954 as added by subsection a shall apply to all taxable years to which such code applies.

What is a 162 executive bonus plan. The employer takes out a life insurance policy on a key employee. An executive bonus plan section 162 is a way for business owners or companies to provide additional supplemental benefits to key employees or executives of their choice.

Section 162 c 1 of such code as amended by subsection b shall apply to all taxable years to which such code applies. How an executive bonus plan works an executive bonus plan is a way to attract retain and reward key employees using life insurance. 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.

Law and analysis section 162 a allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 162 f of the internal revenue code of 1986 formerly i r c. Insurance policies are owned by the executives and are paid for through cash bonuses to the executives.