Separation Pay - Tax Exempt

January 14, 1993 BIR RULING NO. 009-93 SEPARATION PAY TAX EXEMPT 28 (b) (7) (B) 331-92 009-93 Philippine Long Distance Telephone Company P.O. Box No. 952 Makati, Metro Manila Attention: Mr . P . A . Caoili This refers to your request for a ruling as to whether or not the separation benefit to be paid to your employee, Mr. Manuel J. Punzalan by reason of health condition are exempt from income tax and consequently from the withholding tax pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. Documents submitted show that your employee, Mr. Manuel J. Punzalan was certified by your company physician, Dr. Roy P. Villasor to be suffering from ischemic heart disease-dysrhythmia and bronchial asthma; that his illness affects the performance of his duties and would endanger his physical well- being if he continue working; and that by reason of the said findings, he was declared to be unfit for work and was advised by your said physician to retire from his work. Said finding has been confirmed by the BIR Medical Officer. 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/her heirs from the employer as a consequence of separation of such official or employee 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, including terminal leave pay (sick leave and vacation leave credits) which Mr. Manuel J. Punzalan will receive from your company as a result of the separation from the service of your company due to ill health (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. It is however, understood that this exemption does not include your payment of Mr. Manuel J. Punzalan's salary. cdta JOSE U. ONG Commissioner of Internal Revenue