Whether the Separation Benefits Due to Mr. Rodelio M. Aguinaldo by Reason of Health Condition are Exempt from Withholding Tax

September 9, 1992 BIR RULING NO. 258-92 28 (b) (7) (B) 162-92 258-92 Armco-Marsteel Alloy Corporation 2nd Floor, ALPAP I Building 140 Alfaro St., Salcedo Village Makati, Metro Manila Attention: Mr . Alan B . Guinto Manager-Human Resources Gentlemen : This refers to your letter dated July 13, 1992 requesting in effect a ruling that the separation benefits due to your employee, Mr. Rodelio M. Aguinaldo, by reason of health condition are exempt from withholding tax. cdta Documents submitted shows that your employee, Mr. Rodelio M. Aguinaldo, was certified by your company physician, Dra. Luz D. Pagkalinawan, to have been diagnosed to have transverse Myelitis on June, 1990 and was confined at Medical City Hospital due to severe lumbo sacral pain, paresthesia of the lower extremities and faced with difficulty of breathing; that after said confinement he underwent rehabilitative therapy and was under the medical management of Dra. Esther Bitangga, a Neurologist; that said illness has greatly affected his working capacity considering that he has exhausted his 120 days of SS Sick leave last June 23, 1992 for medication and therapy without any significant improvement in his condition; and that due to your said employee's health history your aforenamed company physician has declared Mr. Rodelio M. Aguinaldo, to be no longer fit to return to 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 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. Rodelio M. Aguinaldo 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 payment of Mr. Rodelio M. Aguinaldo's salary. cdti Very truly yours, JOSE U. ONG Commissioner of Internal Revenue