Taxability of the Salary Differentials Pursuant to an Approved CBA

April 24, 1987 BIR RULING NO. 117-87 29 57-83 117-87 S i r : This refers to your letters dated February 3 and April 8, 1987 requesting a ruling as to whether or not the following: "(a) Salary differentials covering the period from April 1, 1982 up to June 15, 1985, at the rate of P228 per month pursuant to an approved Collective Bargaining Agreement (CBA). Said benefit was paid only in July 1986," "(b) Money value of the accrued leave credits for previous years 1983, 1984 and up to June 15, 1985, Said benefit was paid only in December 1986." are subject to income tax. It is represented that the Philippine Veterans Bank (PVB) was ordered liquidated by the Monetary Board of the Central Bank on June 16, 1985; that up to the present, the employees have not as yet received their separation and/or retirement benefits; and that upon representation of the PVB Employees' Union, the Central Bank Liquidator with the approval of the Liquidation Court has authorized the payment of back salaries and/or wages and money values of the accrued leave credits to the employees. adc In reply thereto, I have the honor to inform you that the salary differentials covering the period from April 1, 1982 up to June 15, 1985 paid by the PVB to the employees in July 1986 as well as the money value of the accumulated vacation and sick leave credits for the years 1983, 1984 up to June 15, 1985 are subject to the withholding tax on wages pursuant to Section 82, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82. Under Section 38 of the Tax Code, if the taxpayer is an individual, the net income shall be computed on the basis of the calendar year. All items of income shall be included in gross income for the taxable year in which received by the taxpayer except those expressly excluded and already subjected to the final income tax, and exemption as well as deduction taken accordingly pursuant to Section 21 and 28 in relation to Section 39 all of the Tax Code, as amended. Salaries, commissions, tips, director's fees, and other forms of compensation are income in the year received, and not in the year earned. [par. 717, p. 231, US Master Tax Guide (1969)] Thus, a taxpayer whose income is from salary or the like is required to file his income tax return on the cash basis . In view thereof, this Office is of the opinion as it hereby holds that the salary differentials covering the period from April 1, 1982 up to June 15, 1985 at the rate of P228 per month as well as the money value of the accumulated vacation and sick leave credits should be reported and taxed as income to the employee-recipients for the year of actual receipt, i.e., for 1986. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner