BIR Ruling [DA-366-00]

October 23, 2000 BIR RULING [DA-366-00] DA-245-99 National Home Mortgage Finance Corporation Filomena Building III, 104 Amorsolo St. Legaspi Village, Makati City Attention: Atty . Fermin T . Arzaga Senior Vice-President, Finance Gentlemen : This refers to your letter dated March 20, 2000 addressed to the Regional Director, Revenue Region No. 5, Makati City and was indorsed to this Office, requesting for a ruling on whether or not the monetization of sick leaves credits is subject to tax. It is represented that when government employees were allowed to monetize 50% of their sick leave credits in the middle part of last year, the accountants of National Home Mortgage Finance Corporation have been subjecting the payments to withholding tax based on the regulation that only the monetization of 10 days vacation leave is exempt; that your office interpreted the ruling to mean that all other monetization for the year in excess for the first 10 days is taxable. In reply, please be informed that pursuant to Section 2.78.1 (A)(7) of Revenue Regulations No. 2-98, 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. This Policy on vacation leave credits is on account of conversion into money of the value of such leave credit to employees who opted not to go on leave. However, it does not apply to sick leave credits, considering that the latter are earmarked on the contingency that an employee would have to actually go on leave by reason of sickness or other physical disability, in which case the choice not to avail of the same is not an option available to an employee. (BIR Ruling Nos. DA-245-99 dated April 19, 1999 and 099-92 dated March 20, 1992) Such being the case, the monetization of sick leave credits of your employees is subject to income tax and consequently to the withholding tax under Section 79 of the Tax Code of 1997 Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group