Tax Consequences of Employees Opting for Retirement Under a Retirement Plan with Trustee Bank

November 26, 1996 BIR RULING NO. 128-96 28 (b) (7) (A) 000-00 128-96 S. C. Johnson & Son, Inc. 6371 Estrella Street Guadalupe Viejo 1200 Makati City Attention: Ms . Gloria V . Panganiban Human Resources Director Gentlemen : This refers to your letter dated February 12, 1996 stating that your employee opted for retirement recently and filed her resignation from the company last January 16, 1996; that under your retirement plan with your trustee bank, any employee who has served the company for 10 years and is 50 years old at the time of retirement, may avail of the retirement benefit; and that the employee has just completed 10 years of loyal service but is only 49 years and 10 months old as she is just about to turn 50 on March 22, 1996, thus making her 2 months short of the required age. Based on the foregoing, your now request for a ruling on the following: "1. Can her retirement claim be declared tax free? If no, why not? "2. Assuming it can not be given tax-free now, can the employee claim retirement tax later on as refund when she files her 1996 income tax in April, (because she would have been 50 years old by then)?" In reply, please be informed that the retirement benefits payable to the aforementioned employee shall not be exempt from income tax because Republic Act No. 4917 (now Section 28 (b) (7) (A) of the Tax Code, as amended), requires the presence of these two (2) conditions in order that the employee benefits may be granted tax exemption: (1) the employee had been in the service of the same private firm for at least ten (10) years; and (2) he is at least fifty (50) years old at the time of retirement. Likewise, question no. 2 is answered in the negative inasmuch as the employee involved is not qualified under the aforecited provision. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue