Monetized Unused Vacation Leave Credits - Tax Exempt

January 15, 1993 BIR RULING NO. 033-93 MONETIZED UNUSED VACATION LEAVE CREDITS TAX EXEMPT 21 (a) 72 29-92 033-93 Wyeth-Suaco Laboratories, Inc. 2236 Pasong Tamo Extension Makati, Metro Manila Attention: Ms . Elvira A . Guzman Finance Director This refers to your letter dated May 6, 1992 requesting as to whether monetized unused vacation and sick leave credits of your employees are exempt from income tax and consequently from the withholding tax. It is represented that you are a pharmaceutical and nutritional company; that for the benefit of your regular employees, your company credits each employee with an annual sick leave of sixteen (16) working days, the first five (5) days of which is set aside for cumulative purposes up to a maximum of thirty (30) days; that any unused portion of the remaining eleven (11) days (16-5 days) is paid in cash every January of each year at employee's current salary rate; that all regular employees who have completed one (1) year of continuous service are granted vacation leave from 17 up to a maximum of 24 days per year depending on length of service; that as a general rule, vacation leaves earned but not used by an employee are forfeited and that if in the opinion of the company, the services of an employee are indispensable to the operation during the period that the employee's leave has been scheduled and the company had asked the employee to forego the enjoyment of such vacation leave, employee's vacation leave can be converted into cash. In reply thereto, I have the honor to inform you that the monetized unused vacation leave credits not exceeding ten (10) days during the year are not subject to income tax and consequently to the withholding tax. (BIR Ruling No. 031-92 dated January 23, 1992) However, considering that monetization of leave credits is the payment of the money value of the accumulated vacation leave credits without actually going on leave of absence, the monetization of leave credits therefore shall not apply to sick leave credits because the employee who avails of the sick leave credits has to go on sick leave. (See Joint Civil Service Commission and the Department of Budget & Management Circular No. 1, S. of 1991) cdtech JOSE U. ONG Commissioner of Internal Revenue