Benefits Received by an Employee a Result of Separation from the Service Due to Sickness are Exempt from All Taxes

September 9, 1987 BIR RULING NO. 278-87 29 (b) 041-87 278-87 S i r : This refers to your letter dated June 29, 1987 requesting exemption from the withholding tax on retirement benefits which you received from Citibank N.A. Makati, Metro Manila. Documentary evidence submitted shows that upon the advice of a government physician, you opted to retire under the Early Retirement Program of Citibank N.A. due to ill health. In reply thereto, I have the honor to inform you that pursuant to Section 29 (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 is exempt from income tax. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts which you received from Citibank N.A. as a result of your separation from the service of the bank due to sickness are exempt from all taxes and consequently, from withholding tax prescribed by Section 82, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82. It is, however, understood that this tax exemption does not include payments for your salary and cash equivalent of your accumulated vacation and sick leaves, if any. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner