Single-bonus vs. double-bonus executive plans — the difference

Start with the Section 162 bonus plan

A Section 162 executive bonus plan is a simple way for a business to reward a key employee: the employer pays the executive a bonus, and the executive uses it to fund a life insurance policy they personally own. It's popular because it's straightforward, the bonus is generally deductible to the employer as compensation, and the executive gets portable coverage with cash value. The only wrinkle is taxes — and that's where single and double bonuses diverge.

Single bonus: the executive pays the tax

A bonus is taxable income. In a single-bonus arrangement, the employer pays the executive an amount equal to the policy premium, and the executive is responsible for the income tax on that bonus out of their own pocket. It's the simpler, lower-cost version for the employer, but the executive feels a bit of the pinch at tax time.

Double bonus: the employer covers the tax too

In a double-bonus — sometimes called a "gross-up" — the employer pays an additional bonus specifically to cover the tax on the first bonus. The net effect is that the executive's out-of-pocket cost is essentially zero: the premium is funded and the tax is handled. It's a more generous, more attractive benefit, at a higher cost to the employer.

How to think about the choice

There's no universally "right" version — it's a cost-versus-attractiveness decision:

• Single bonus keeps employer cost down and still delivers a valuable, portable benefit. Good when budget discipline matters.
• Double bonus maximizes the perceived value and removes any out-of-pocket friction for a prized executive. Good when retention and recruiting leverage are the priority.

Either way, the executive owns the policy — which is great for them but gives the employer little to hold over departures. Employers who want retention strings often layer on a restricted arrangement (a REBA). And because the tax treatment is central here, confirm the specifics with your CPA before setting it up.

Your next step

Decide what the plan is really for — a nice benefit, or a serious retention tool — and let that drive whether you cover the executive's tax and whether you add restrictions. The structure should match the goal.