Separation Pay - Tax-Exempt

July 19, 1993 BIR RULING NO. 326-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 338-92 326-93 Philtread Tire & Rubber Corporation 3rd Flr., Alegria Bldg., 2229 Pasong Tamo Makati, Metro Manila Attention: Mr . Antonio C . Ruiz Vice President This refers to your request for a ruling that the separation benefits to be paid to Ms. Marissa G. Santiago 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 disclosed that your employee, Ms. Marissa G. Santiago was certified by her attending physician, Dr. Cesar A. Alarilla, to have a history of severe hypertension with a blood pressure ranging from 140 over 100 to 180 over 120 which is associated with chest heaviness and chest pains caused by Ischemia and that said illness affects the performance of her duties and endangers her life if she continues working. 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 by his heirs from his employer as a consequence of separation of such official or employee from the service of his 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, including terminal leave pay (sick leave and vacation leave credits) which Ms. Marissa G. Santiago will receive from you as a result of her separation from the service of your company due to her aforesaid health condition are exempt from income tax and consequently, from withholding tax as prescribed under 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 Ms. Marissa G. Santiago's salary. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue