Separation Pay - Tax-Exempt

March 10, 1993 BIR RULING NO. 100-93 SEPARATION PAY TAX-EXEMPT 28 (b) 000-00 100-93 R.P. Garcia Publishing Co., Inc. 903 Quezon Avenue, Quezon City Attention: Mr . Antonio M . Garcia President This refers to your letter dated 02 December 1992 stating that your company decided to lay-off your employee since you will stop your printing operations as of December 30, 1992 due to the withdrawal of the printing of the Teodoro Agoncillo books which constitutes 90% of your printing operations; that with the lay-off of your employees you are obliged to pay their separation pay and other benefits that may accrue to them. cdtech In connection therewith, you now request for opinion on whether it is obligatory on your part to deduct the withholding tax on all compensation paid during the 1992 to your employees, that is salaries, wages and 13th month pay, separation pay and other benefits to be paid to your said employees. In reply thereto, 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 his 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 said official or employee is exempt from taxes regardless of age or length of service. The abovementioned law requires the presence of these two conditions in order that the employee benefits may be granted tax exemption; (1) the employee is separated from the service of the employer due to death, sickness, or other physical disability or for cause beyond the control of the said official or employee; and (2) the employer pays benefits to the official or employee or his heirs as a consequence of such separation. Since the separation of your employees due to closure of your printing operation is beyond their control, any and all amounts to be received by them as a result thereof are exempt from all taxes and consequently from the withholding tax prescribed by Section 72, Chapter 10, Title II of the Tax Code as amended by Batas Pambansa 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 their 13th month pay and salaries for the calendar year 1992. JOSE U. ONG Commissioner of Internal Revenue