Will the Retirement Benefits of Employee-Members of the Retirement Plan Who are Over Age 65 and Have Rendered More than Ten Years of Credited Service be 100% Tax-Free in Case they are Retired Soon?

January 30, 1991 BIR RULING NO. 014-91 28 (b) (7) 000-00 014-91 Gentlemen : This refers to your letter dated July 9, 1990 posing the following queries: "1) Will the retirement benefits of our employee-members of the Plan who are over age 65 and have rendered more than ten years of credited service be 100% tax-free in case we decided to retire them soon?". cdtech 2) Similarly, we have an employee-member who celebrated his 83rd birthday last April 13, 1990 and has been in the service for 39 years now will he be entitled to 100% tax exemption on his retirement benefit despite the age limit of 70 per Section 3, above, should we finally retire him this year?; and, 3) Are the former employees who retired (with age 50 and over plus with at least 10-years service) between January 1, 1986 and April 3, 1990, entitled to refund of the withholding tax deducted from their retirement benefits and subsequently remitted to BIR? If so, what are the procedures?" Our records show that your company has a retirement plan duly approved by this Office on November 17, 1989 as a qualified plan pursuant to Republic Act No. 4917; that in said Plan, Article VI therein provides for the normal retirement of a member which is on "the first day of the month coincident with or next following his attainment of age 65, or completion of 30 years of credited service whichever is earlier; "early retirement wherein" at the option of the corporation, or at the employees' option but subject to approval of the corporation, a member may retire on "any first day of any month coincident with or following his attainment of age 50 and completion of at least 10 years of credited service, or his completion of 20 years of credited service; "and, late retirement wherein at "the option of the corporation, a member may be allowed to remain in service after his normal retirement date but not beyond age 70 and on a case-to-case and yearly extension basis; that our Ruling did not mention any date of effectivity although your rules and regulations provided that it is effective January 1, 1986; that the actual funding of your Plan was made on June 2, 1989. In reply, I have the honor to inform you that since your Plan has been qualified as a reasonable retirement benefit plan within the contemplation of Republic Act No. 4917 [now section 28 (b) (7)(A) of the Tax Code] the retirement benefits to be received by the member-employees shall be exempt from all taxes upon their normal retirement. Such being the case, the benefits to be received by those who are over 65 but not beyond 70 and have rendered more than ten years of credited service shall be exempt from all taxes. Your query #1 therefore is answered in the affirmative. As for your query #2, under the aforequoted provisions of the Plan, your employee who is 83 years old and has been serving the company for 39 years, the benefits that have vested up to his compulsory retirement age of 65 and as extended until 70 under your late retirement provision, are exempt from tax. Whatever benefits he will receive in addition to his retirement benefits beyond age 70 shall be subject to income tax and consequently to the withholding tax prescribed by Section 72, Chapter XI, Title II of the Tax Code. Query #3 is answered in the affirmative. However, no credit or refund of taxes shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax pursuant to Section 204 of the Tax Code. Such being the case, taxes allegedly withheld on retirement benefits of employees who have retired at age 50 or more with at least 10 years of service in the company may be refunded to them provided that they file with this Office their written request within two (2) years from the date the tax was remitted to the government. Finally, as to the date of effectivity of your Plan, Revenue Regulations No. 1-83 dated October 28, 1982, amending Revenue Regulations No. 1-68 otherwise known as Private Benefit Retirement Plan Regulations, provides as follows: "Tax Exemption privileges under a qualified Retirement Plan shall retro act to the date of effectivity of the Plan." Accordingly, the date of effectivity of the P.I. Manufacturing, Inc. Employees' Retirement Plan is January 1, 1986 the date provided in the Plan (Sec. 3, Art. I, Plan). aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner