In order to protect the operating income of the employer company, the employer may purchase the insurance policy of the key insurance plan for the employees, and the premium paid by the employer is tax deductible. However, the keyman insurance plan must have the following characteristics:
• The insurance policy is to insure the employer’s operating income due to injury, illness or death of the employee
• Insurance only provides life insurance protection for employees
• Insurance is limited to the period when the employer hires employees
• The employer is the beneficiary
Since the compensation from this type of insurance policy is to compensate the employer’s business income, these compensations are taxable. However, if the insured is a sole proprietor or a partner operating a business, the premium paid is not tax deductible, because there is no employer-employee relationship, and the compensation of this type of insurance policy is not taxable. In addition, if the policy itself is or pays additional premiums to protect the interests of the family members when the employee dies, then the own premiums or additional premiums are not tax deductible, and the compensation received from this situation is also not taxable.
The above information is for reference only. If in doubt, we welcome your tax inquiries