Taxability of Monetized Leave Credits of Private Employees

May 25, 1992 BIR RULING NO. 165-92 21 (a); 72 099-92 165-92 The Regional Director Revenue Region No. 7 Central Visayas Cebu City Attention: Atty . Sol E . Hubahib Gentlemen : This refers to your request for a ruling on whether or not vacation and sick leave credits of private employees which are converted into cash at the end of the year are subject to income tax and consequently, to the withholding tax on wages prescribed by Section 72, Chapter 10, Title II of the Tax Code, as amended, in view of the resolution of the Supreme Court in the case of Commissioner of Internal Revenue vs. The Court of Appeals and Efren P. Castaeda , G.R. No. 96016, re: non-taxability of terminal leave pay received by officials/employees retiring from the government service. In reply, please be informed that the monetized unused vacation leave credits not exceeding ten (10) days during the year are not subject to income tax and consequently, to the withholding tax. (BIR Ruling 031-92, dated January 23, 1992; and BIR Ruling No. 99-92, dated March 20, 1992). However, considering that monetization of leave credits is the payment of the money value of the accumulated vacation leave credits without actually going on leave of absence, the monetization of leave credits , therefore, shall not apply to sick leave credits because the employee who avails of the sick leave credits has to go on sick leave. (BIR Ruling No. 99-92). Very truly yours, JOSE U. ONG Commissioner of Internal Revenue