Dear PAO,
I am sixty-five years old and had just retired from my current company (Company B). I was with them for five years. When I received my retirement pay from them, I saw that it was subjected to tax. When I asked the Human Resource Department as to why my retirement pay was taxed when my retirement pay from my previous company (Company A) was not, they said that my retirement pay now is already taxable. I was with Company A for 30 years. Is Company B correct in subjecting my retirement pay to tax?
Amado
Dear Amado,
First of all, thank you for writing to us.
Now, based on the facts that you presented to us, we understand that you already had your first retirement with Company A at the age of 60 years old. However, you chose to work for another company for another five years and were then entitled to another retirement pay.
We herein state Section 32 (B)(6) of the National Internal Revenue Code, as revised, which provides:
“Section 32 – Gross Income xxx
"(B) Exclusions from Gross Income xxx
"(6) Retirement Benefits, Pensions, Gratuities, etc. –
"(a) Retirement benefits received under Republic Act No. 7641 and those received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, That the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement: Provided, further, That the benefits granted under this subparagraph shall be availed of by an official or employee only once. xxx”
Following the above-cited provisions of the law, it is clear that the retirement pay you received from Company A is exempt from tax since you met the criteria under the Tax Code, i.e., (1) you were with Company A for at least ten [10] years, and (2) you were at least fifty [50] years of age at the time of your retirement.
We now discuss the retirement pay that you received from Company B.
Pursuant to Article 302 of the Labor Code, you are entitled to retirement pay from Company B since you rendered service to them for at least five years, and were already 65 years old at the time of your retirement, which is the compulsory retirement age.
However, a reading of the applicable Tax Code provisions would show that the retirement pay you received from Company B is already subject to tax. This is because of the following reasons:
(1) You only rendered five years of service to Company B. The Tax Code requires that you should be with the company for at least 10 years; and
(2) You already availed of the tax exemption when you received your retirement pay from Company A. The Tax Code specifically stated that the tax exemption for retirement pay can only be availed of once.
In summary, while you are entitled to retirement pay from Company B, the same is not tax exempt for not meeting the criteria required under the Tax Code.
We hope that we were able to answer your queries. This advice was based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.
Thank you for your continued trust and support.
