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

March 13, 1992 BIR RULING NO. 079-92 28 (b) (7) (B) 255-91 079-92 Manila Electric Company Ortigas Avenue Pasig, Metro Manila 1602 Attention: A . B . Factura Assistant Vice President Legal Service Department Gentlemen : This refers to your request for a ruling as to whether or not the separation benefits to be paid to your employees, Messrs. Honorario V. Rojas and Virgilio R. Antonio 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. 1. Honorario V. Rojas Guillain Barre Syndrome; and 2. Virgilio R. Antonio Ischemic Heart Disease 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 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 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. It is however, understood that this exemption does not include your company's payments for Messrs. Honorario V. Rojas and Virgilio R. Antonio salaries. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue