Taxability of the Monetization of Unused Sick Leave Credits an Employee Who Voluntarily Resigns

December 21, 1992 BIR RULING NO. 365-92 21 (a), 72 28 (b) (7) (B) 099-92 277-92 365-92 National Steel Corporation 377 Sen. Gil J. Puyat Avenue Makati, Metro Manila Attention: Mr . Rogelio G . Chan Senior Manager Corporate Services Gentlemen : This refers to your letter dated March 19, 1992 requesting for a ruling on whether the monetization of unused sick leave credits and the commutation of earned vacation leaves and sick leave credits of an employee who resigns voluntarily from the service are exempt from tax. In reply, please be informed that considering that the monetization of leave credits is the payment of the money value of the accumulated leave credits without actually going on leave of absence, the monetization of unused vacation leave credits therefore shall not apply to sick leave credits because the employee who avails of the sick leave credits has to go on sick leave. (See Joint Civil Service Commission and the Department of Budget and Management Circular No. 1, S. of 1991) On the other hand, the commutation of earned vacation leaves and sick leave credits of an employee who resigns voluntarily from the service of the company is not exempt from tax. To be entitled to the benefit, the resignation/separation of the said official or employee must be due to death, sickness, or other physical disability or for any cause beyond the control of the said official or employee pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue