Tax Exemption of Benefits Received by Employee Upon Separation from Service Due to Ill Health

January 23, 1992 BIR RULING NO. 031-92 28 (b) (7) (B) 002-92 031-92 Ms. Gladys L. Estrada Block 7, Lot 14-15 Acco Homes, Dagat-Dagatan Avenue, Caloocan City M a d a m : This refers to your letter dated January 7, 1992 requesting exemption from withholding tax of the separation benefits which you will receive as a result of your separation from the service of the Philippine Long Distance Telephone Company effective November 27, 1991 due to ill health. Documentary evidence submitted shows that in a certification issued on December 10, 1991 by your company physician and as attested by your employer, you are suffering from chronic and severe lumbo sacral-low back pain syndrome which have affected the performance of your duties as telephone operator; 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 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 which you will receive from the Philippine Long Distance Telephone Company 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) iatdc Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue