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Tax exemptions on retirement plans: Revalidated and clarified

The Philippine Star recently published a news piece on Republic Act (RA) 4197. Below is an excerpt form the news piece:

Last June 27, 2013, the BIR issued BIR Ruling No. 234-13 revalidating that the said retirement plan is exempt from final taxes on interest income. This time, however, the BIR observed that the retirement plan provides that the normal retirement date of an employee-member shall be the first day of the month coincident with or next following his 60th birthday provided he has served the company for at least five years of credited service. Consequently, the BIR asserted that the retirement benefits payable to the retiring member shall not be exempt from income tax.

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ABOUT THE AUTHOR

Raymund Zalamea

Raymund has over 20 years of experience in retirement consulting, entrepreneurship and marketing. He manages both the actuarial and the benefits administration services for Zalamea.

Raymund has also been successful in launching an online employee portal that provides seamless processing of payroll, timekeeping, retirement savings and loans.

2 thoughts on “Tax exemptions on retirement plans: Revalidated and clarified

  1. Hi sir. Good evening.

    One of our officers is 56 years old & has been in service for the past 13 years. She plan to retire this year (December 31 2018),

    We have a retirement fund managed by BDO but until not its not yet approved by the BIR. Also, our policy is 60 years old to be covered by the fund. Since she is stll 56 years old & does not qualify, we plan that her retirement benefit shall be paid through our general fund or say the operation. Our concerns are the following:

    1. Is she tax exempt considering that the payoff comes from the operation & not from the retirement fund?

    2. Is the retirement benefit paidoff deductible from income tax?

    3 Do we have to make it appear that the retirement is involuntary to make it tax exempt?

    We hope to receive your wisdom on this matter. Thank you.

    1. Hi, sorry for this late reply.
      Since the prospective Retiree is not yet 60 years old, she will not be entitled to a retirement benefit under the Company’s Retirement Plan. If the Company would like to pay her a retirement benefit from its corporate fund, it may do so but may not be a “retirement ” benefit but rather more of a voluntary separation benefit since she is not also qualified for a retirement benefit under the Retirement Pay Law (RA 7641).
      Any benefit paid to her by the Company shall be a tax deductible expense. however, The benefit shall not be tax exempt to the retiree and therefore subject to withholding tax.
      If the benefit is due to involuntary separation, it shall be tax exempt but there will be reportorial requirement by the DOLE.
      hope to have clarified your concerns.
      emz

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