BIR Ruling [DA-109-00]
BIR Ruling [DA-109-00] • Bureau of Internal Revenue (BIR) Issuances • Rulings (Unnumbered) • Feb 21, 2000
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February 21, 2000 BIR RULING [DA-109-00] Nagkakaisang Lakas ng Manggagawa sa Cosmos (NLMC)-NAFLU 150 Pineapple Road, Potrero Malabon, Metro Manila Attention: Mr . Ruben R . Ricarte Board Member and Mr. Rosendo B. Aramil Vice-President Gentlemen : This refers to your letter dated December 8, 1999 requesting in effect for a ruling on how to treat the monetized unutilized sick and vacation leave credits. It is represented that your unused sick leave and vacation leave is convertible to cash and reimbursed to you the month following the year ended pursuant to your CBA; that it is your understanding that the same should not be subject to tax as per Section 32 of the Tax Code of 1997; and that you do not receive the total exact value of your monetized unutilized sick and vacation leave credits since a certain amount is being deducted by your employer. In reply, please be informed that Section 2.78.1 of Revenue Regulations No. 2-98 provides, viz: "Sec. 27.78.1. Withholding of Income Tax on Compensation Income : xxx xxx xxx (7) Vacation and Sick Leave Allowances Amounts of "vacation allowances or sick leave credits" which are paid to an employee constitutes compensation. Thus, the salary of an employee on vacation or sick leave, which are paid notwithstanding his absence from work, constitutes compensation. However, the monetized value of unutilized vacation leave credits of ten (10) days or less which were paid to the employee during the year are not subject to income tax and to the withholding tax." Therefore, the leave credits not exceeding ten (10) days during the year are not subject to income tax and consequently to the withholding tax. However, if the monetized leave credits exceed ten days, the excess thereof will be subject to income tax and consequently to withholding tax. Finally, only the employees' actual unused vacation leave credits for each particular year not exceeding 10 days shall be exempt from taxation. (BIR Ruling No. 16-96 dated February 20, 1996) llcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group
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