BIR Ruling [UN-150-94]

May 16, 1994 BIR RULING [UN-150-94] Banco Filipino 101 Paseo de Roxas Makati, Metro Manila Attention: Ms . Elena B . Lindain Gentlemen : This refers to your letter dated September 21, 1993 requesting for clarification as to whether the salaries and allowances for the period from September 1985 to February 1989 can be considered income for the year 1993; and whether you are to submit the BIR Form W-4 of the employees. It is represented that pursuant to BF Stockholders' Resolution dated February 26, 1993, the salaries and allowances of the employees are to be paid from the time of the Bank's closure in "September 1985 up to February 1989 or until such time they obtained new employments". cdtech In reply thereto, 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 heirs from the employer as a consequence of separation by 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 said official or employee is exempt from taxes regardless of age or length of service. However, the backwages paid to the employees cannot be considered as benefits paid as a consequence of their involuntary separation from the service of their employer within the contemplation of Section 28(b) (7) (B) of the Tax Code but as remunerations for services that would have been performed by the said employees for your company prior to 1993. Such being the case, the said backwages are subject to income tax, and consequently to the withholding tax on wages. Moreover, you have to submit the BIR Form W-4, pursuant to Section 72, Chapter 10, Title II of the Tax Code, as implemented by Revenue Regulations No. 6-82, as amended. On the other hand, the employees shall, in filing their annual income tax return, report as income and pay their respective income taxes by allocating or spreading their back wages for the years 1985 to 1989 and crediting corresponding income tax withheld from said wage payments (BIR Ruling No. 28-57-83-234-90 dated December 14, 1990; and Unnumbered Ruling dated May 20, 1993). cdt Very truly yours, ALICIA P. CLEMENO Acting Assistant Commissioner (Legal Service)