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

March 20, 1992 BIR RULING NO. 097-92 28 (b) (7) (B) 177-91 097-92 Ms. Lani G. Polintan 32 Sandiko Poblacion Marilao, Bulacan M a d a m : This refers to your letter dated October 2, 1991 requesting for exemption from income tax and consequently from withholding tax of the separation benefits which are due you from Goodwill Bookstore, as a consequence of your separation effective August 15, 1991 by reason of your health condition, pursuant to Section 28(b)(7)(B) of the Tax Code, as implemented by Revenue Memorandum Order No. 25-91. Documents submitted disclosed that you were separated from Goodwill Trading Co., as Head-Cashier on August 15, 1991 for reasons of ill health; that to support your request for exemption of your separation benefits you submitted photo copies of the medical report/clinical summary from the National Kidney Institute, wherein it was stated among others, that your "Liver is enlarged"; that you were advised in said Hospital on October 19, 1990 with an impression of "Liver Tuberculosis"; that you were scheduled for Aspiration Biopsy of the Liver on October 22, 1990, contracted of Liver Tuberculosis and discharged on October 30, 1990; that you were advised for a weekly check-up by Dr. Manuel Hipolito, M.D. and declared as unfit for 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 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 you will receive as a result of your separation from the service of your company due to 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. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue