An executive bonus (IRC 162 bonus) is a compensation strategy where an employer pays bonuses to fund a personally owned life insurance policy for a key employee. The bonus is taxable income to the employee and deductible to the employer, subject to reasonable-compensation rules. Variations include double-bonus designs that gross up taxes so the employee nets the full premium. The policy provides death benefit protection and potential cash value, offering portable benefits the executive controls. Companies use 162 bonuses as a simple, nonqualified benefit with minimal administration and no ERISA funding requirements.

Employers fund a 162 bonus policy on a key employee to deliver portable protection and cash value. HR treats premiums as taxable wages; some companies gross up the taxes. Advisors set ownership/beneficiary designations and target death benefits. Annual reviews track performance and confirm the bonus remains competitive versus other retention tools.