Separation Benefits Received as a Result of Separation from the Service Due to Ill Health is Exempt from Income Tax

December 12, 1991 BIR RULING NO. 266-91 28 (b) (7) (B) 101-91 266-91 S i r : This refers to your letter dated November 15, 1991 requesting exemption from withholding tax of the separation benefits which you received as a result of your separation from the service of Amalgamated Specialties Corporation effective October 31, 1991 due to ill health. Documentary evidence submitted shows that in a Sworn Affidavit executed on November 6, 1991 by your company's Medical Director as attested by Mr. Eliseo S. Laqui, Jr. your company's treasurer and your immediate superior, and as confirmed by Dr. Erwin C. Ortega, Chief, Medical & Dental Division of the BIR, Q.C. you are suffering from myocardial infarction and arteriosclerotic heart disease for which reason you can no longer continue working without endangering your life; hence, the recommendation for your retirement from your 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 you will receive from Amalgamated Specialties Corporation as a result of your separation from the service due to 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. aisadc Moreover, the cash equivalent of your accumulated vacation and sick leave credits, if any is not likewise subject to income tax and consequently to the withholding tax. (BIR Ruling No. 28 (b) (7) (B)-113-91-238-91 dated November 8, 1991) Very truly yours, (SGD.) JOSE U. ONG Commissioner