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

December 17, 1992 BIR RULING NO. 360-92 28 (b) (7) (B) 315-92 360-92 Intel Philippine Manufacturing, Inc. 1321 Apolinario Street, Makati, Metro Manila Attention: Mr . Dino Patricio Personnel Operations Officer Gentlemen : This refers to your request for a ruling as to whether or not the separation benefit to be paid to your employee, Ms. ELVIRA E. DUCANTE by reason of health condition is exempt from income tax and consequently from the withholding tax pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. Documents submitted show that your employee, Mrs. Elvira E. Ducante was certified by your company physician, Dr. Nestor Falgui to be suffering from Rheumatic Heart Disease/Embolism; that her illness affects the performance of her duties being a machine operator, and would endanger her physical well-being if she continue working; and that by reason of the said findings, she was declared to be unfit for work and was advised by your said physician to retire from her work. This finding has been confirmed by the BIR Medical Officer. cdti 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/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. Elvira Ducante will receive from your company as a result of her separation from the service of your company due the said 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 that this exemption does not include your payment of Ms. Elvira Ducante's salary. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue