What are excluded from compensation income?
The following are the items of “exclusions”:
- Proceeds of a life insurance policy.
- Amount received by the insured as return of premium.
- Compensation for injuries or sickness received by an employee pursuant to an. Accident or Health Insurance or under the Workmen’s Compensation Act.
- Income exempt under Treaty or International commitments of the Philippine Government (e.g., compensation income of U. S. Military Service Personnel while serving the U. S. Military bases in the Philippines).
- Retirement and separation benefits.
A. Retirement benefits – retirement benefits are taxable as a general rule, except when received by an employee under the provisions of Republic Act No. 7641, in which case, such benefits are tax exempt. However, the following requisites must be present:
- The private retirement or pension plan must be duly registered and approved by the B.I.R.;
- The retiring employee must retire at least at age 50;
- The retiring employee must have served the employer for at least ten (10) years prior to retirement; and
- The retiring employee must avail of the tax exemption only once.
B. Separation benefits – separation benefits are taxable as a general rule. However, if the employee was separated from employment because of death, sickness, or other physical disability or for causes beyond his control (e.g. retrenchment, redundancy and installation of labor-saving device), then his separation pay shall be exempt from income tax.
6. SSS and GSIS benefits.
7. Prizes and awards in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement but only if the recipient was selected without entering such contest or proceedings and will not be required to render substantial future services as a condition to receiving the prize or award.
8. Prizes and awards in sports competition, whether local or international, sanctioned by their National Sports Associations.
9. 13th month pay and other benefits (productivity incentives, loyalty award, 14th month pay, gifts in cash or in kind and Christmas bonus) not exceeding P82,000 (under R.A. 10653).
10. GSIS, SSS, Philhealth, Pag-ibig contributions and Union dues (employee’s share).
JONATHAN RUIZ CPA, MIB