Separation Benefits Received by Employees Separated from Service Due to Ill Health are Exempt from Income Tax

November 8, 1991 BIR RULING NO. 236-91 28 (b) (7) (B) 177-91 236-91 Gentlemen : This refers to your request for a ruling as to whether or not the separation benefit to be paid to your employees, Messrs. Josefino Dawal, Alvin Mirandilla and Danilo Maala by reason of health condition are 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 the foregoing employees were certified by your company physician, Dr. Cesar A. Alarilla to be suffering from: 1. Josefino Dawal recurrent, severe low back pains; 2. Alvin Mirandilla medical disability secondary to recurrent low back pains; and 3. Danilo Maala recurring pains in the heel of his (R) foot; that their respective illness affects the performance of their respective duties and would endanger their physical well-being if they continue working; and that by reason of the said findings, they were declared to be unfit for work and were advised by your physician to retire from their 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 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. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts which the foregoing employees will received from your company as a result of their separation from the service of your company due to their 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 Messrs. Josefino Dawal, Alvin Mirandilla and Danilo Maala salaries and cash equivalent of their accumulated vacation and sick leaves, if any. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner