Request for Exemption from Withholding Tax of the Separation Benefits as a Result of Separation from the Service Due to Ill Health

February 19, 1992 BIR RULING NO. 054-92 28 (b) (7) (B) 031-92 054-92 Mr. Benjamin V. de Jesus No. 5 Rupee St., Meralco Village Taytay, Rizal S i r : This refers to your letter dated January 28, 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 Manila Electric Company due to ill health. Documentary evidence submitted shows that in an Affidavit executed by Messrs. George M. Matti and Roberto A. Masiglat, the company physician and the Head of the Payroll Office of the Manila Electric Company, you are suffering from Osteoarthritis of the Lumbar and Cervical Spine, Multiple Cholelithiasis which have affected the performance of your duties; hence, the recommendation for your retirement from 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 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 Manila Electric 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) Very truly yours, JOSE U. ONG Commissioner of Internal Revenue