Tax Exemption of Separation Benefits Paid to Employee Separated from Service by Reason of Health Condition

November 9, 1992 BIR RULING NO. 326-92 28 (b) (7) (B) 290-92 326-92 Ms. Lucila Quezada c/o Victoria Manufacturing Corporation Barangay Sta. Lucia Pasig, Metro Manila M a d a m : This refers to your request for a ruling that the separation benefits to be paid to you by Victoria Manufacturing Corporation by reason of health condition are exempt from all taxes pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. Documents submitted show that you were certified by your Company Physician, Dr. Jorge B. Ty to be suffering from slurring of speech and right hemiparesis, caused by thrombotic cerebral infraction (left) and that said illness affects the performance of your duties and endangers your life if you continue working. Said finding is confirmed by the BIR Medical Officer. In reply, please by 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/her 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 of 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, including terminal leave pay and leave credits which you will receive as a result of your separation from the service of your employer due to the 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 this exemption does not include the payment of your salary. cdtech Very truly yours, VICTOR A. DEOFERIO, JR. Deputy Commissioner (Officer-in-Charge)