Whether the Separation Benefits to be Received by Employee by Reason of Health Condition are Exempt from Income Tax

December 16, 1992 BIR RULING NO. 357-92 28 (b) (7) (B) 315-92 357-92 Philippine Long Distance Telephone Company P.O. Box No. 952 Makati, Metro Manila Attention: Ms . P . A . Caoili Gentlemen : This refers to your request for a ruling as to whether or not the separation benefits to be received by your employee, MS. MYRNA S. GUTIERREZ by reason of health condition are exempt from income tax and consequently from the withholding tax pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. LexLib Documents submitted show that your employee, Ms. Myrna S. Gutierrez, was certified by your company physician, Dr. Eduardo G. Arandia to be suffering from back pain syndrome and cervical redical upaphius; that her illness affects the performance of her duties and would endanger her physical well-being if she continue working; and that by reason of the said finding, she was declared to be unfit for work and was advised by your said physician to retire from her work. Said finding has been 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 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 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. Myrna S. Gutierrez will receive from your company as a result of her separation from the service of your company due to her ill health (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. It is however, understood that this exemption does not include your payment of Ms. Myna S. Gutierrez' salary. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue