BIR Ruling [DA-033-97]

January 21, 1997 BIR RULING [DA-033-97] C.C. Unson Co., Inc. 172 Gen. Luis Street Novaliches, Quezon City Attention: Mr . Joselito C . Roberto Accounting Manager Gentlemen : Thus refers to your letter dated October 21, 1996 requesting for a ruling on whether monetized unused vacation and sick leave credits are exempt from income tax consequently from the withholding tax. It is represented that your company, C.C. Unson Co., Inc. is a manufacturing firm engaged in the manufacture of automotive and industrial batteries; that for the benefit of your regular employees, your company credits each employee with an annual vacation and sick leave of seventeen (17) and sixteen (16) days respectively; that their unused leave credits are automatically converted into cash and paid during the payroll period where the anniversary date of the employee falls; and that said cash conversion takes place two (2) years from the date of hiring and every year thereafter. In reply, please be informed that the monetized unused vacation leave credits not exceeding ten (10) days during the year are not subject to income tax and consequently to the withholding tax. Conversely, the cash equivalent of vacation leave exceeding ten (110) days is subject to tax. However, considering that monetization of leave credits is the payment of the money value of the accumulated vacation leave credits without actually going on leave of absence, the monetization of leave credits therefore shall not apply to sick leave credits because the employee who avails of the sick leave credits has to go on sick leave. (Joint Civil Service Commission and the Department of Budget and Management Circular No. 1, S. of 1991) (BIR Ruling No. 033-93 dated January 15, 1993) Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)