How is the premium paid in an Executive bonus plan classified?

In an Executive Bonus Plan, the premium paid is classified as being paid by the employee. This is because the employer provides the employee with a cash bonus that is specifically intended for the employee to use to pay for a life insurance policy. The policy is generally owned by the employee, and the employee is responsible for any tax implications resulting from the bonus, including the premium payments.

Since the bonus is seen as additional compensation, the employee handles the premium payments directly. This arrangement also allows the employer to structure the bonus as a tax-deductible expense while the employee can potentially benefit from insurance coverage without the employer controlling the policy funds. Understanding this framework helps clarify the financial interactions in Executive Bonus Plans and their implications on tax treatment for both entities.