Tax exemption on separation benefits

Requests for rulings typically come from private sector employees seeking tax exemption on separation benefits.
Employers often withhold taxes without ruling to avoid assessments, compelling employees to apply for tax refunds.
This memorandum devolves processing of exempt separation benefits due to death, sickness, or disability to Revenue Regions.
Issuance of Certificate of Tax Exemption (CTE) replaces confirmatory rulings for these cases.
Requests related to causes beyond employee control continue to be processed by the Law Division at the National Office.

Letter request from employee/heirs or employer for tax and withholding tax exemption.
Certified true copy of Death Certificate if applicable.
For sickness/disability: Sworn affidavits by attending physician and head of office confirming serious illness or disability.
Clinical records showing history and diagnosis; laboratory or medical certificates confirming condition.
BIR may require additional documents based on circumstances.
A Checklist of Requirements (Annex A) to guide applicants.

Submission of complete documents to RDO where employer is registered.
Pre-evaluation by Officer of the Day using action checklist (Annex B).
If incomplete, Notice to Comply issued; failure leads to Notice of Archiving (Annex D).
Complete applications forwarded to Revenue District Officer for detailed evaluation.
Endorsement letter sent to Chief, Legal Division of jurisdictional Revenue Region.
Transmission of application within five (5) days to Legal Division for evaluation and action.

Legal Division Chief assigns action officer to evaluate and draft Certificate of Tax Exemption.
CTE confirms specific tax exemptions applicable.
Regional Director reviews, re-evaluates and approves applications strictly meeting documentary and legal requirements.

CTE numbered with code indicating Revenue Region, RDO number, year, and sequence number.
Issued in triplicate: original for taxpayer, duplicate to docket, triplicate to ACIR Legal Service.
Original copies bear official dry seal to prevent invalidation.
Permanent record book maintained by Legal Division documenting issuance details.

Income Tax: Exempt from inclusion in gross income and income tax under Section 32(B)(6)(b).
Other income before separation remains taxable under Section 24.
Withholding Tax: Separation benefits exempt from withholding tax per Section 79 and related Revenue Regulations.
No withholding deductions on separation benefits; full amount paid to entitled employee.

Pending applications at National Office prior to order's effectivity will continue to be processed there.
Repeals inconsistent issuances or parts thereof.
Order effective immediately upon adoption on June 13, 2011.