Taxability of Retirement Benefits

Are retirement benefits taxable? RA 4917 is an act providing that retirement benefits of employees of private firms shall not be subject to attachment, levy, execution, or any tax whatsoever.

EXEMPTION OF RETIREMENT BENEFITS FROM TAXES

What are the conditions for exemption from taxation?

RA 4917, mandates that retirement benefits of employees of private firms shall not be subject to any tax provided the following conditions set forth therein are fully complied with:

[1] The retirement benefits received by officials and employees of private firms, whether individual or corporate, is in accordance with areasonable private benefit plan maintained by the employer;
[2] The retiring official or employee has been in the service of the same employer for at least ten (10) years;
[3] He/she is not less than fifty (50) years of age at the time of his/her retirement; and
[4] The benefits shall be availed of by an official or employee only once.
As used in said law, the term ‘reasonable private benefit plan’ means a pension, gratuity, stock bonus or profit sharing plan maintained by an employer for the benefit of some or all of his officials and employees, wherein contributions are made by such employer or officials and employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.

EXCLUSION OF RETIREMENT BENEFITS FROM GROSS INCOME

In addition to R.A. No. 4917, another law, R.A. No. 8424, otherwise known as the “Tax Reform Act of 1997,” which amended the National Internal Revenue Code (NIRC) , expressly excludes retirement benefits from gross income based on the same four (4) conditions enumerated above.

EXEMPTION OF RETIREMENT PAY OF UNDERGROUND MINE WORKERS FROM TAX

The retirement pay provided in R.A. No. 8558 may be exempted from tax consistent with the requirements set by the Bureau of Internal Revenue (BIR) as discussed and described above.