Whether the Separation Benefit to be Paid to Employees by Reason of Health Condition are Exempt from Income Tax

February 18, 1992 BIR RULING NO. 053-92 28 (b) (7) (B) 127-91 053-92 Philippine Long Distance Telephone Company P.O. Box No. 952 Makati, Metro Manila Attention: Mr . O . A . Caoili Gentlemen : This refers to your request for a ruling as to whether or not the separation benefit to be paid to your employees, Mr. Renato B. Gomez and Mrs. Marilou F. Merced by reason of health condition are exempt from income tax and consequently from the withholding tax pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. Documents submitted show that the foregoing employees were certified by your company physician, Dr. Felix M. Rustia to be suffering from: 1. Renato B. Gomez Schizophrenia reaction and was also further diagnosed by Dr. J. Japson, a psychiatrist, to be suffering from same illness; 2. Marilou F. Merced HPN Essential with recurrent stroke and with residual left hemeparesis accompanied by body weakness, dizziness, headache and with a Blood Pressure of 170\110. (tested last year up to the present) that their respective illness affects the performance of their respective duties and would endanger their physical well being if they continue working; and that by reason of the said findings, they were declared to be unfit for work and were advised by your said physician to retire from their work. 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 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 the foregoing employees will receive from your company as a result of their separation from the service of your company due to their ill health (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. cdta Very truly yours, JOSE U. ONG Commissioner of Internal Revenue