BIR Ruling No. 428-11

November 4, 2011 BIR RULING NO. 428-11 R.R. Nos. 2-98, 8-2000, 10-2000, 10-2008 and 005-11; BIR Ruling No. DA-(ECB-024) 724-09; BIR Ruling No. DA-211-01 Susita R. Vargas Municipal Treasurer Office of the Treasurer Pili, Camarines Sur Madam : This refers to your letter dated June 13, 2011 requesting for a refund of the withholding tax on the monetized value of leave credits. It is represented that you applied for monetization of your vacation and sick leave credits which amounted to P370,000.00, however P110,115.72 has been deducted as withholding tax. In reply, please be informed that pursuant to Section 1 of Executive Order (EO) No. 291, abrogating Section 2.78.1 (A) (7) of Revenue Regulations (RR) No. 2-98, and other BIR Rulings which subject the monetization of vacation leave credits in excess of ten (10) days and sick leave credits to income tax, "the monetized leave credits of government officials and employees shall continue to be exempted from income tax". Under Memorandum Circular No. 31, S. 1991 implementing Joint Civil Service Commission-Department of Budget and Management, Circular No. 1, S. of 1991, as amended by Joint CSC-DBM Circular No. 2-97, S. of 1997 which is the basis of EO 291, both vacation and sick leave credits are allowed to be monetized. Section 2.78.1 of RR No. 2-98 as amended by RR Nos. 8-2000, 10-2000, 10-2008 and 005-11 clarifies that the monetized (vacation or sick) leave credits of government employees are de minimis benefits not subject to income tax and withholding tax, viz. : EaHcDS "Sec. 2.78.1. Withholding of Income Tax on Compensation Income. (A) . . . (1) . . . xxx xxx xxx (3) Facilities and privileges of relatively small value. . . . xxx xxx xxx The following shall be considered as "de minimis" benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees: xxx xxx xxx (b) Monetized value of vacation and sick leave credits paid to government officials and employees; xxx xxx xxx It is clear, therefore, that monetized unused vacation and sick leave credits of government officials and employees are not subject to income tax and consequently to the withholding tax. (BIR Ruling No. DA-(ECB-024) 724-09 dated December 2, 2009) Accordingly, the withholding tax on the monetized value of leave credits should be refunded by the Municipal Government of Pili, Camarines, Sur. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. TAacCE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue