BIR Ruling No. 025-11

January 28, 2011 BIR RULING NO. 025-11 Tax Code of 1997, as amended, Section 32 (B) (6) (b); BIR Ruling DA-068-00; BIR Ruling No. 069-98 Carolyn C. Martin c/o Security Bank Corporation Security Bank Centre, 6776 Ayala Avenue, Makati City Madam : This refers to your letter dated October 11, 2010 requesting for tax exemption on the separation benefits received by your husband, MR. JEROME S. MARTIN, on account of his separation from employment due to physical disability. It appears that MR. JEROME S. MARTIN was employed by SECURITY BANK CORPORATION from July 18, 1988 to July 4, 2010 as an Operations Specialist. He was separated from service after he suffered a cardiac arrest and became comatose on June 16, 2010. In reply thereto, please be informed that pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, 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 employee from the service of the employer due to death, sickness, or other physical disability or for any cause beyond the control of said official or employee is exempt from taxes regardless of age or length of service. The above-mentioned law requires the presence of these two conditions in order that the employee benefits may be granted tax exemption: (1) the employee is separated 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; and (2) the employer pays benefits to the official or employee or his heirs as a consequence of such separation. Since the separation from service of MR. JEROME S. MARTIN was due to sickness/physical disability, any and all amounts received by him as a result thereof are exempt from all taxes and consequently from the withholding tax prescribed by Section 79 of the Tax Code of 1997 and as implemented by Revenue Regulations No. 6-82, as amended. (BIR Ruling DA-068-00, dated February 2, 2000). DIETHS In view of the foregoing, the separation benefits of MR. JEROME S. MARTIN are exempt from income tax and consequently from the withholding tax. Finally, the tax exemption does not include the company's payment of MR. JEROME S. MARTIN's salary. (BIR Ruling No. 069-98 dated October 6, 1998). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue