Tax Exemption of Separation Benefits Paid to Employee Separated from Service by Reason of Health Condition

February 26, 1992 BIR RULING NO. 067-92 28 (b) (7) (B) 177-91 067-92 Manila Electric Company Lopez Building, Ortigas Ave. Pasig, Metro Manila Gentlemen : This refers to your request for a ruling that the separation benefits to be paid to Mr. Honorato T. Bernardo by reason of health condition be exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. Documents submitted show that your employee, Mr. Honorato T. Bernardo was certified by your company's Attending Physician, Dr. George M. Matti to be suffering from Hip Prothesis and Chandler's Disease; that said illness affects the performance of his duties and endangers his life if he continues working. Said finding is confirmed by the BIR Medical Officer. In reply, please be informed that pursuant to Section 29(b)(7)(B) of the Tax Code, as amended, any amount received by an official or employee or by her 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 Mr. Honorato T. Bernardo will receive from you as a result of his separation from the service of your company due to his aforesaid health condition 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. It is however, understood that this exemption does not include your payments of Mr. Bernardo's salary. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue