Separation Pay - Tax-Exempt

March 12, 1993 BIR RULING NO. 102-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 056-93 102-93 Vitarich 5th Floor, Sarmiento Building 2316 Pasong Tamo Extension Makati, Metro Manila Attention: Mr . Enrico T . Enriquez AVP-Human Resource Division This refers to your request for a ruling that the separation benefits to be paid to MR. ENRIQUE TOLENTINO by reason of health condition are exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. cdt Documents submitted show that your employee, Mr. Enrique Tolentino was diagnosed by your company's attending Physician, Dr. Tolentino SJ Nieva, to be having Gastric Icer; that by October, 1992, the patient was hospitalized and undergone series of medical examinations; that patient shows signs and symptoms of progression of the disease, such as pallor, moderate loss of weight and generalized body weakness with continuing attack of epigastric pain, increasing in intensity as days pass by and 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 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 his 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, including terminal leave pay (sick leave and vacation leave credits) which Mr. Enrique Tolentino 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 as 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 payment of Mr. Enrique Tolentino's salary. JOSE U. ONG Commissioner of Internal Revenue