Tax Exemption of the Separation Benefits Paid to Employee as a Result of Separation from the Service Due to Ill Health

January 6, 1992 BIR RULING NO. 002-92 28 (b) (7) (B) 101-91 002-92 Mrs. Teresita V. Lagman #6053 Palma Street, Makati, Metro Manila M a d a m : This refers to your letter dated October 7, 1991 requesting exemption from withholding tax of the separation benefits which you will receive as a result of your separation from the service of Sycip Gorres Velayo & Co. effective August 31, 1991 due to ill health. Documentary evidence submitted shows that in a certification issued on November 6, 1991 by your company doctor and as attested to by your employer, you are suffering from chronic pyelonephritis and bilateral otoscerosis for more than 10 years which have affected the performance of your duties as Executive Assistant to the Chairman of the SGV Group; and that your chronic illness consisting of tinnitus, progressive deafness and vertigo or dizziness are precipitated by work-related stress and fatigue; hence, the recommendation for your retirement from your job. In reply, please be informed that pursuant to Section 28(b)(7)(B) of the Tax Code, as amended, any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employees from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee shall not be included in gross income and shall be exempt from taxation under Title II of the Tax Code. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts which you will receive from Sycip Gorres Velayo & Co. as a result of your separation from the service due to sickness are exempt from income tax and consequently, from withholding tax prescribed by Section 72 Chapter 10, Title II of the Tax Code, as amended by B.P. Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. Moreover, the cash equivalent of your accumulated vacation and sick leave credits, if any, is not likewise subject to income tax and consequently to the withholding tax. (BIR Ruling No. 28(b)(7)(B)-113-91-238-91 dated November 8, 1991) Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue