(Revenue Memorandum Circular No. 120-2020 issued on November 09, 2020)
This Tax Alert is issued to inform all concerned on the following clarifications on the tax exemption of retirement benefits pursuant to Bayanihan to Recover as One Act (Republic Act No. 11494) or the Bayanihan II and as implemented under Revenue Regulations (RR) No. 29-2020.
- The official or employee should both retire and receive the retirement benefits from June 5, 2020 to December 31, 2020 to be entitled to exemption.
- The retirement benefits shall be exempt from income tax, regardless of an employee’s number of years of service or his age, as long as the retirement benefits were received in accordance with a retirement plan duly registered with the BIR and the retired official or employee is not re-employed within the succeeding 12-month period by the same company or its related parties.
- The re-employment of retired official or employee within the succeeding 12-month shall be considered proof of non-retirement under the Bayanihan II. Hence, the employee will be liable to the income tax on the retirement benefits received. The 12-month period is reckoned from the date of retirement.
- The retirement plan is duly registered with the BIR when it has been issued with a Certificate of Qualification as a Reasonable Employees' Retirement Benefit Plan.
- Retirement benefits in excess of what is provided under the retirement plan registered with the BIR are taxable.
- The retirement benefits received under RA No. 7641 by an official or employee who is 60 to 65 years old and has served at least 5 years shall be exempt from income tax even if received from a retirement plan not registered with the BIR since exemption is provided under Section 32 (B)(6) of the Tax Code.
- Retirement benefits which are exempt under the Tax Code are not covered by the re-employment prohibition.
- Employees who received retirement benefits from June 5, 2020 to December 31, 2020 shall still be included in the Annual Alphalist of Employees.
