Tax Exemption of Separation Benefits Paid to Employee Separated from Service by Reason of Health Condition

June 11, 1992 BIR RULING NO. 184-92 28 (b) (7) (B) 052-92 184-92 Aris Philippines, Inc. 229 Orambo Drive, Pasig, Metro Manila Attention: Ms . Belen V . Cardona Personnel Manager Gentlemen : This refers to your request for a ruling as to whether or not the separation benefit to be paid to your employee, Ms. Josefina M. Cosico by reason of health condition is exempt from income tax and consequently from the withholding tax pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. Documents submitted show that your employee was certified by your company physician, Sheila Guzman, to be suffering from a vascular necrosis of femoral head SIP Transphenoidal surgery for Pituitary Adenoma; that her illness affects the performance of her duties and would endanger her physical well being if she will continue working; and that by reason of the said findings, she was declared to be unfit for work and was advised by your said physician to retire from her work. Said finding is confirmed by the BIR Medical Officer. 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 the gross income and shall be 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 your employee, Ms. Josefina M. Cosico, will receive as a result of her separation from the service of your company due to her ill health (sickness) is 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 payment of Ms. Josefina M. Cosico's salary. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue