november 14, 2013 09:05am

Are separation benefits taxable?

Section 32 (B)(6)(b) of the Tax Code, as amended, provides that any amount received by an official or employee, or by his heirs, from the employer as a consequence of separation from service because of death, sickness or other physical disability — or for any cause beyond the control of said official or employee, such as retrenchment, redundancy, or cessation of business — is exempt from income tax and, consequently, from withholding tax.

The phrase "for any cause beyond the control of the said official or employee" connotes involuntariness on the part of the official or employee. Separation from the service of the official or employee must not be asked for or initiated by him. This means the separation was not of his own doing.
For employee benefits to be granted tax exemption, two conditions must be present:

1. the employee is separated 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; and

2. the employer pays benefits to the official or employee or his heirs as a consequence of such separation.

However, the exemption shall be limited only to benefits given to the employee as a result of his separation.

As cited in previous tax rulings, these benefits include vested retirement benefits from the retirement plan, employee’s entitlement to the company’s share in the provident fund, financial assistance equivalent to 75% of final monthly salary for every year of service, separation pay for every year of service, and terminal leave pay, i.e., the accumulated vacation and sick leave credits, among others.

However, salaries and bonuses paid up to the date of termination are considered compensation subject to income tax and to withholding tax on compensation.

It is noted that the same treatment applies to benefits given to an employee who voluntarily resigns due to health reasons that have prevented him from returning to work. The Tax Code provides that amounts received by an employee due to sickness or physical disability are also exempt from income tax.

Bureau of Internal Revenue (BIR) Ruling DA-383-06, dated June 21, 2006, ruled that if the employee has a complicated sickness and cannot return to work — as advised by his attending doctor — because his illness is aggravated by his work condition and his continued employment with the company might worsen the illness or even jeopardize his life, any and all amounts to be received by him/her as a result of separation from service are exempt from income tax and consequently from withholding tax.
However, the BIR required that a medical certificate from a Public Health Authority be submitted as proof that the employee’s condition renders him no longer fit to work.

The expenses incurred by the employer in providing these types of benefits are deductible from the gross income for being an ordinary and necessary trade or business expense.

In the existing rules, it is not clear whether an approval or confirmation from the BIR must be obtained regarding the tax exemption of these benefits. Notably, several taxpayers recently obtained tax rulings from the BIR on this matter, despite the fact that this has already been included in the "no-ruling areas" announced by the BIR. It is almost certain, though, that in case the amounts of these benefits are significant, the BIR will evaluate closely the nature of these payments in case of a tax investigation.

Whether or not the separation is beyond the control of the said employee will be determined on the basis of prevailing facts and circumstances.

In this regard, employers are well-advised to keep documents to establish the circumstances for the separation of the employee and the amounts of benefits paid to them.

Moreover, they should comply with the existing requirement to attach a document, which establishes the nature of these separation benefits, in their monthly return for the period in which the amount was paid due to involuntary separation.

This article is not intended to be a substitute for professional advice.

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august 19, 2013 09:48am

highly customizable payroll system( commercial and not opensource )

I have improved the anahaw payroll ( sourceforge discontinued project ) system with built-in support for orange hrm. this payroll is designed for Philippines only.

this payroll system have the ff feature :

web-based payroll
free mysql database
runs on Linux,Windows and Mac
WAN / LAN / Single Connection ready
Unlimited number of employees
Unlimited number of users

Multi Division / Department / Branch / Cost Centers ready
Multi-bank support, multi-currency support
User maintainable updates on SSS, PhilHealth, Pagibig and Tax tables
Loan file maintenance, Unlimited Loan Type, automatic deduction with loan status monitoring
Unlimited Other Income Type

Leave Monitoring, Leave conversion available
Bonus,Mid-Year,13th month and others benefits available
Company Employees Cooperative available
Project Time Management System available as replacement for bio-metric
HMO,COOP support availalable
email payslip

Employment agency / BPO support available.
Government payroll suport available

support for biometric devices available
Multiple option on Statutory Deduction
100% Government Compliance

this payroll is ideal for :

Private, Government, Employment Agency, Cooperative and School.

for demo pls contact :

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august 19, 2013 09:44am

Ubuntu 12.04 : Adding Bookmarks/Shortcuts to left sidebar of nautilus manager

Go to your folder and press Ctrl + D (or ADD from Bookmark option in menu bar).

if it does not work ( for first bookmark ).
press Ctrl + B (or Edit from Bookmark option in menu bar).

edit existing bookmarks like music.

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april 27, 2012 08:55am

skype and recording problem hp g42 ubuntu 11.10

in Application -> System Tools -> System Setting
the select Sound then click Hardware Tab
select Manhattan HDMI Audio then in Profile below select off.
select Internal Audio in Profile select Analog Souround 4.0 Output + Analog Sterio Input

i think the above procedure is enought but before that i issue this command :
sudo apt-get install gnome-alsamixer

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february 23, 2012 11:11am

Install Adobe Flash Plugin(Fix not working yahoo video) solved in Ubuntu 11.10

sudo apt-get remove --purge adobe-flashplugin flashplugin* nspluginwrapper
sudo apt-get install --reinstall adobe-flashplugin
sudo apt-get remove --purge gnash

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october 16, 2011 07:42am

How To Install Gnome 3 Shell in Ubuntu 11.10

Open the terminal and enter the following command :

sudo apt-get install gnome-shell

Next, reboot and click on the little settings icon near the password field

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october 16, 2011 07:37am

Upgrade to Ubuntu 11.10 problem: Waiting for network configuration then black sc

Have you just upgraded to Ubuntu 11.10 Oneiric Ocelot and now getting the “Waiting for network configuration” message followed by “Waiting up to 60 seconds more for network”? This then might be accompanied by a black blank screen.

[update] I’ve updated this post to reflect the copy step mentioned in the bug post below is surplus as /run is mounted tmpfs – the refined steps are below. The fix is removing the old /var/run and /var/lock then pointing those old locations to /run and /run/lock respectively. I’m suspecting this bug only comes about after an upgrade from your existing session (e.g. apt-get dist-upgrade) where it must have trouble removing these directories because existing services have files needed in there.

The fix is based on this: :

Hit Ctrl+Alt+F1 at the blank screen to get you to a non-X terminal (tty1)
Login in with your username and password
Change to root with: sudo -i and enter your password
mkdir -p /run /run/lock
rm -rf /var/run /var/lock
ln -s /run /var
ln -s /run/lock /var

You should have 11.10 back again.

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