Under an executive bonus arrangement, how is the premium paid to the employee treated for tax purposes?

Under an executive bonus arrangement, the premium paid by the employer on behalf of the employee is treated as taxable income to the employee. This means that when an employer provides a benefit such as a life insurance policy through an executive bonus plan, the value of that premium is included in the employee's taxable income for the year. Consequently, the employee is responsible for paying taxes on that amount, which is reported on their W-2 Form.

This tax treatment encourages employers to utilize executive bonuses as a means of rewarding and retaining key employees, knowing that these annual premiums will be advantageous to their compensation packages. The employer may also deduct the amount paid as a business expense, making this arrangement beneficial for both parties, but ultimately, the premium itself is taxable income to the employee.