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

June 24, 1992 BIR RULING NO. 190-92 28 (b) (7) (B) 052-92 190-92 Adamson University Manila Gentlemen : This refers to your request for a ruling that the separation benefits to be paid to Mrs. Jane Q. Beltran by reason of health condition are exempt from all taxes pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. llcd Documents submitted show that your employee, Mrs. Jane Q. Beltran was certified by your Physician, Dr. Erlinda C. Patrimonio to be suffering from uncontrolled hypertension, ischemia heart disease, and diabetic mellitus: and that said illness affects the performance of the duties and endangers her life if she continues working. 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 her heirs from her employer as a consequence of separation of such official or employee from the service of her 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. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts, including terminal leave pay, sick leave and vacation leave pays, which Mrs. Jane Q. Beltran will receive from you as a result of her separation from the service of your company due to her aforesaid health condition 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 payment of Mrs. Jane Q. Beltran's salary. LLphil Very truly yours, EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge