Tax Alert No. 90 [Revenue Memorandum Circular (RMC) No. 120-2020 dated 30 October 2020]

Further Clarifications on the Retirement Benefits Exempt from Income Tax Pursuant to the Bayanihan to Recover as One Act, as implemented by Revenue Regulation (RR) No. 29-2020

The Commissioner of Internal Revenue has issued RMC No. 120-2020 to provide further clarifications regarding retirement benefits exempt from income tax pursuant to Republic Act (RA) No. 11494, or the Bayanihan to Recover as One Act, as implemented under RR No. 29-2020.

• The retirement benefits received by an employee in accordance with the BIR-registered retirement plan is exempt from income tax even though the employee did not meet the length of service condition under the approved employees’ retirement benefits plan. The same is exempt from income tax since it is based on the registered retirement plan with the BIR, for as long as the employee retired and received the benefits during the covered period of 5 June to 31 December 2020. However, any amount received by a retired employee in excess of what is provided in the BIR-registered retirement plan shall be taxable.A retirement plan is duly registered with the BIR when it has been issued a Certificate of Qualification as a Reasonable Employees’ Retirement Benefit Plan.
• If the employee who received the retirement benefits is subsequently re-employed in the company where he previously worked with or to any of its related parties within the succeeding twelve-month period reckoned from the date of retirement, the employee must pay the income tax due thereon.
• If the company has no BIR-registered retirement plan, the retirement benefits provided to its retired employees is subject to income tax even if the retirement and payment thereof occurred during the covered period. Thus, the company shall be liable to withhold and remit the corresponding income tax due thereon.
• Retirement benefits given to employees pursuant to RA 7641 or the Retirement Pay Law, where the payee is already sixty (60) years old and has rendered not less than five years of service are tax exempt regardless of subsequent re-employment.
• Those employees indicated in the list of recipients of retirement benefits and other income payments exempt from income tax under RR No. 29-2020 shall still be included in the Annual Alphabetical List of Employees since the same shall reflect the income received by the said employees for the year, inclusive of retirement benefits and other income payments.

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