Wages Constructively Paid to a Taxpayer are Subject to Income Tax

November 5, 1959 BIR RULING NO. 566-59 Messrs. Sycip, Gorres, Velayo & Co. Certified Public Accountants P. O. Box 589, Manila Gentlemen : Reference is made to your letter dated September 21, 1959, requesting information as follows: cdi "We would like to ask for a clarification of your ruling dated August 27, 1959, which states: 'In reply to your letter dated August 21, 1959, I have the honor to inform you that inasmuch as you are reporting your income on the basis of actual receipts, you may include in your income tax return for a certain year the amount of retirement pay actually received by you during that year. The company making payment should withhold the tax corresponding to the amount actually paid to you.' "Our questions are: "1. Would your ruling still apply in a case where the retirement pay, on the date of the employee's retirement, has been credited in full in favor of the employee by a solvent company, but the employee withdrew it only in installments? "2. In those cases where the employee has the right to make a choice as to whether he will receive the retirement pay in one lump sum or in installments, would it make any difference if the employee makes the election before or after the retirement benefits become due? "3. Would your reply to the foregoing questions affect the obligation of the company to withhold taxes due on the retirement pay?" In answer thereto, I have the honor to quote the following pertinent provisions of Revenue Regulations No. V-8-A: "Wages are constructively paid within the meaning of these regulations when they are credited to the account of or set apart for an employee so that they may be drawn upon by him at any time although not then actually reduced to possession. To constitute payment in such a case, the wages must be credited or set apart to the employee without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made, and must be made available to him so that they may be drawn upon at any time, and their payment brought within his control and disposition." (Sec. 27, 2nd par.; See also sec. 52, Rev. Regs. No. 2) As wages constructively paid to a taxpayer are subject to income tax for the year during which the same have been so paid, if the circumstances of a given case are such that the retirement pay can be considered as having been constructively paid in full to the employee, the ruling in question would no longer hold notwithstanding the fact that he elected to withdraw said pay only in installments. Neither would it make any difference if the employee makes the election before or after the retirement benefit becomes due. The company making the payment should deduct and withhold the tax corresponding to the full amount constructively paid to the employee. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue