The retirement benefits received by an employee deciding to retire early from a private firm are exempt from income tax if he has rendered a minimum service of eight years and is receiving the benefits before the end of the year.
BIR Commissioner Caesar Dulay explained that retirement benefits are tax exempt even though the worker did not meet the length of service prescribed in the approved employees' retirement plan.
The BIR chief came out with the explanation when he issued Revenue Memorandum Circular 120-2020.
The guideline clarifies retirement benefits exempt from income tax of those who retired from June 5 to December 31, 2020, pursuant to Republic Act 11494, or the Bayanihan to Recover as One Act and received by
However, the retirement benefits is subject to income tax if the worker will receive the benefits in January 2021, beyond the coverage of RA 11494.
The circular also stated that the employe will not be required to pay the said tax when he is rehired by the sister company of his former employer one year after retirement.
However, the tax will be imposed if the related company reemployed him within one year upon retirement.