RMO No. 26-2011: Prescribes the guidelines in the tax treatment of separation benefits received by officials and employees on account of their separation from employment due to death, sickness or other physical disability and the issuance of Certificate of Tax Exemption from Income Tax and from  withholding Tax

Summary

RMO No. 26-2011 prescribes guidelines on the tax treatment of separation benefits received due to death, sickness or other physical disability, and on issuing a Certificate of Tax Exemption from Income Tax and Withholding Tax.

Key points

1. Documents for the request. Submit to the RDO where the employer is originally registered a letter request from the employee, heirs or employer. For death, add a certified true copy of the Death Certificate. For sickness or disability, add sworn affidavits of the physician and the Head of Office, the clinical record, and a laboratory examination or medical certificate.
2. Additional documents. The BIR may require additional documents to prove entitlement. The processing steps are specified in the order.
3. Income tax. The separation benefits are not included in gross income and are exempt from tax, regardless of age and length of service. Other income received before separation remains taxable.
4. Withholding tax. The benefits are exempt from Withholding Tax, so nothing is deducted and the entire amount goes to the separated employee.
5. Pending applications. Applications pending with the Law Division in the National Office before the order was issued will be acted on there.

Who is affected

• Officials and employees separated due to death, sickness or physical disability, and their heirs
• Employers

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.