Whether Separation Pay is Exempt from Withholding Tax

June 3, 1992 BIR RULING NO. 183-92 28 (b) (7) (B) 034-89 183-92 Mr. Daniel Lopez c/o Manufacturers Building, Inc. 10th Floor, Manufacturers Building Plaza Sta. Cruz, Manila S i r : This refers to your letter dated November 21, 1990 requesting for a ruling that your separation pay is exempt from withholding tax. It is represented that you are 79 years old, and was employed by the Manufacturers Building, Inc. as a maintenance carpenter in 1969; that sometime in 1989, you lost consciousness and later experienced bodily pain; that after treatment, you were able to resume work but eventually had to stop due to constant bodily pain and occasional loss of memory; that based on the certifications issued by the company physician and by a certain Dra. Rosalinda F. Mendoza whose medical opinion was subscribed and sworn to before the Municipal Mayor of Bustos, Bulacan, you were diagnosed to be suffering from chronic cerebral insufficiency, secondary from arteriosclerotic cardiovascular disease, and rheumatic arthritis; that you were certified by the herein before-mentioned doctors not to benefit to work as a carpenter anymore; that consequently, you were separated from the company effective November 15, 1990 due to ill health; and finally, that you have not been given your separation pay pending this request. 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 employee 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 be exempt from taxation under Title II of the Tax Code. Based on the foregoing, this Office is of the opinion as it hereby holds that any and all amounts which you will receive from Manufacturers Building, Inc. as a result of your separation from the service of said company due to 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 the tax exemption does not include the company's payment for your salary, if any. LLpr Very truly yours, JOSE U. ONG Commissioner of Internal Revenue