20-221D 20-221D . . . Stock Bonus Plan Board of Directors has authority to determine which key employees shall be awarded stock bonuses, amounts of bonuses, number of shares of common stock to be awarded, and all other terms and provisions of each bonus. Bonus awards are based on attainment of specified types and combinations of performance measurement criteria, which may differ as to various employees
New Jersey Executive Bonus Plan
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Multi-State
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US-CC-20-221D
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FAQ
In some cases, they can be a more tax-efficient way to reward top talent. They give employees additional compensation with a lower current cost to the employer than some other types of benefits. And since they only apply to top-level employees, they're often a less expensive benefit for the employer to add.
Yes, assuming the underlying facts of your company's bonus plan meet the criteria for deductibility.
An Executive Bonus Plan, also referred to as Section 162 Plan, is a non-qualified plan used by employers to provide special compensation to key executives. The employers' contribution to an executive bonus plan is considered salary to the executive and is therefore subject to taxation.
Bonus payments are tax-deductible by the business, but the employee must pay income tax on the benefit.
The plan is portable for the executive. Although the company will cease to make payments at separation of employment, the executive may elect to continue plan.
Under a section 162 Executive Bonus Plan, the employee takes each year's bonus into taxable income as received or when the premium is paid by the company. Some companies will gross up or pay an additional bonus to pay for projected income taxes and payroll taxes attributable to the bonus.
Bonuses are considered wages and are taxed the same way as other wages on your tax return. However, the IRS doesn't consider them regular wages. Instead, your bonus counts as supplemental wages and can be subject to different federal withholding rules than your regular wages when your get paid your bonus.
The only major downside to an insurance-based Section 162 bonus plan is that when the employee leaves the company, the policy goes with him or her. You're no longer obligated to pay the premiums, of course, but you also don't recoup any of the value of the policy you've been paying for.