Tax Alert No. 85 [Revenue Regulation (RR) No. 29-2020 dated 15 October 2020]

Implementing the Provisions of Republic Act (RA) No. 11494 or the "Bayanihan to Recover as One Act" Relative to the Tax Exemption of Certain Income Payments

The Secretary of Finance has issued RR No. 29-2020 to provide for the implementing rules on the exemption from tax of certain income payments under the provisions of RA 11494, “An Act Providing for COVID-19 Response and Recovery Interventions and Providing Mechanisms to Accelerate the Recovery and Bolster the Resiliency of the Philippine Economy” also known as the “Bayanihan to Recover as One Act”.

Tax exemption

The following income payments shall be excluded from gross income and shall not be subject to income tax:

• Retirement benefits received by officials and employees of private firms, whether individual or corporate, from 5 June 2020 to 31 December 2020 in accordance with a retirement plan duly-registered with the Bureau of Internal Revenue (BIR). Any re-employment of such official or employee in the same firm and its related parties under Section 4 of RR No. 19-2020 within the succeeding twelve (12) months shall be construed as non-retirement. Should there be any re-employment within the calendar year 2020, the employer shall include the said retirement benefits in the taxable gross income of the concerned official or employee for 2020. On the other hand, if the re-employment happens in 2021 and within the twelve-month period, the concerned employee shall pay the taxes due on the retirement benefits received within thirty (30) days from the date of re-employment, or on the due date for the payment of the second installment payment of the 2020 income tax, whichever comes later, without penalties.
• COVID-19 special risk allowance given to public and private health workers
• Actual hazard duty pay given to temporary Human Resources for Health (HRH) serving in the front line during the state of emergency due to COVID-19
• Compensation paid to private and public health workers who have contracted COVID-19 in the line of duty or dies while fighting COVID-19. The compensation paid in case of death shall also be excluded from the gross estate of the decedent subject to estate tax.

Administrative requirements

The abovementioned income payments shall be included in the Alphabetical List of Employees/Payees being submitted annually by employers pursuant to existing regulations. In addition, a one-time list of recipients shall be provided not later than 15 January 2021, to the Revenue District Office/concerned office under the Large Taxpayers Services having jurisdiction over the employer/implementing government agency. In addition, concerned employers shall also submit a quarterly list of employees who received retirement benefits but are re-employed during the twelve-month period. The said list shall be submitted within 30 days from the close of all quarters in 2021 only.

Transitory provision

In the event that taxes were withheld from the retirement benefits, the same shall be refunded to the concerned employees. The concerned employers of the public or private health workers and HRHs shall refund the income tax withheld from the said income payments after the year-end adjustment by the employer for purposes of determining taxable compensation and the corresponding tax due to the employees. If the adjustment resulted to excess tax remittance, such excess shall be deducted or applied as deduction in the succeeding withholding tax remittance

This regulation shall take effect immediately after publication in the Official Gazette or in a newspaper of general circulation, whichever comes first.

You may access the full version of this issuance through the BIR website.