Income Tax — Cash Value of Vacation and Sick Leave Credits

June 21, 1979 BIR RULING NO. 039-79 Income tax cash value of vacation and sick leave credits This refers to your letter dated February 19, 1979 requesting a ruling on the taxability of the total terminal pay of Mr. Joselito B. Deveza. It is represented that one of your employees, Mr. Joselito B. Deveza was separated from the service of that corporation on December 15, 1978 due to redundancy; and that as a consequence thereof, Mr. Jimenez will receive from you a separation pay equivalent to one month basic pay for every year of service and a total terminal pay of approximately fifteen thousand pesos (P15,000.00). In reply thereto, I have the honor to inform you that vacation and sick leaves are privileges arising out of employment. The terminal leave pay or the amount received by an employee from his employer as equivalent in cash of his accumulated vacation and sick leave credits is considered part of compensation paid to his by reason of such employment and, therefore, taxable income to the employee-recipient thereof. cd In view thereof, this Office is of the opinion as it hereby holds that the total terminal pay of Mr. Joselito E. Deveza in the amount of P15,000.00 is subject to income tax and consequently to the withholding tax prescribed by Chapter XI, Title II of the Tax Code of 1977 as implemented by Revenue Regulations No. V-8 as amended by Revenue Regulations No. 9-75.