Separation Benefits Paid to an Employee Separated from Service Due to Ill Health are Exempt from All Taxes

November 27, 1991 BIR RULING NO. 255-91 28 (b) (7) (B) 177-91 255-91 Gentlemen : This refers to your letter dated October 10, 1991 requesting a ruling that the separation benefits to be paid to Mr. Romeo E. Boongaling by reason of health condition be exempt from all taxes pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. Documents submitted show that your employee, Mr. Romeo E. Boongaling, was certified by his Attending Physician, Dr. Carandang to be suffering from Psoriasis Vulgaris, a skin disease of unknown cause they may recur every now and then and may be aggravated by many factors like stress, dusts, yarns and others; and that said illness affects the performance of his duties and endangers his health if he continues working. 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 Mr. Boongaling will receive from you as a result of his separation from the service of your company due to his 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 payments of Mr. Boongaling's salary. Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner (Officer-in-Charge)