The Executive Bonus Plan is a dynamic concept that is simple in operation. A key employee or executive owns life insurance on their life and your business pays the premium directly or indirectly through a salary bonus.

The bonus amount is deductible by you (as an ordinary and necessary expense) under Section 162 of the Internal Revenue Code (subject to compensation limits). The same bonus amount is taxable to the employee as ordinary income (just like any other cash bonus). In addition, you always have the option to increase bonus payments to offset your employee’s income tax liability.

There are several approaches to structuring the bonus arrangement. MassMutual can help you with this and other business solutions.