Income Benefits Representing the Difference Between Income Regularly Received and that of SSS Income Benefits while on Sick Leave are Exempt from Taxation

August 23, 1991 BIR RULING NO. 163-91 28 (b) (5) 000-00 163-91 Gentlemen : This refers to your letter dated July 17, 1991 stating that employees who are in sick leave of absence as a result of work connected injuries or illness caused by accident avail, among others, of the income benefit under the Social Security System (SSS); that since the income benefit from SSS is less than the regular income received by the employees, Management, per your Collective Bargaining Agreement (CBA), agrees to pay the employees the difference in income regularly received and that of SSS income benefit while on sick leave of absence. cdta You now request for a ruling whether the difference between the income regularly received and that of the SSS income benefit while on sick leave of absence is subject to withholding tax. In reply, please be informed that under Section 25 (b) (5) of the Tax Code, reading "(b) Exclusion from gross income the following items shall not be included in gross income and shall be exempt from taxation under the title: xxx xxx xxx (5) Compensation for injuries or sickness Amounts received through accident or Health Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amounts of any damages received whether by suit or agreement on account of such injuries or sickness." (emphasis supplied) income benefits representing the difference between income regularly received and that of SSS income benefits while on sick leave under and by virtue of a CBA or additional amounts of damages for work-connected injury or illness contemplated in Section 28 (b) (5) of the Tax Code. Said provision being in the nature of social legislation should be liberally construed; hence, said benefits should be exempt from income tax. Consequently, it is also exempt from withholding under Section 72 of the Tax Code, as implemented by Revenue Regulations No. 12-86. cdtech Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge