Benefits Received by an Employee who was Separated from Service of Employer Due to Ill Health is Exempt from Taxation

September 10, 1991 BIR RULING NO. 177-91 28 (b) (7) (8) 101-91 177-91 Gentlemen : This refers to your letter dated July 30, 1991 requesting a ruling as to whether or not the benefits which are due to one of your employees, Mr. Nunilon Vizconde, as a consequence of his retirement from your company by reason of his health condition effective August 9, 1991 are exempt from income tax and consequently from withholding tax under now Section 28 (b) (7) (B) of the Tax Code, as amended. cdta Documents submitted shows that your employee, Mr. Nunilon Vizconde, in a letter dated July 30, 1991 informed you that he is retiring from your company for health reasons; that in the same letter he also requested you not to withhold the corresponding income tax on the separation pay benefits he will receive from your company; and that he supported the reason for his retirement by attaching in his said letter a photocopy of a Medical Certificate from his attending physician, Dr. Christina Congco, wherein it is stated, among others, that Mr. Nunilon Z. Vizconde has been his patient for the past 2 years due to an on & off and lately regular attacks of joint pairs especially on the knees, elbows and others, which was diagnosed to be a chronic gouty arthritis declaring Mr. Nunilon Z. Vizconde to be unfit for work. 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 the employer as a consequence of separation of such official or employees from the service of the 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 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 which Mr. Nunilon Z. Vizconde, will receive from your company as a result of his separation from the service of your company due to his ill health (sickness) are exempt from income tax and consequently, from withholding tax 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 company's payments for Mr. Nunilon Z. Vizconde's salary and cash equivalent of his accumulated vacation and sick leaves, if any. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge