
REVENUE MEMORANDUM CIRCULAR NO. 120-2020 issued on November 9, 2020 further clarifies (through Questions and Answers) the exemption from Income Tax of the retirement benefits received by employees of private firms from June 5, 2020 to December 31, 2020 pursuant to Republic Act (RA) No. 11494 (Bayanihan to Recover as One Act), as implemented under Revenue Regulations (RR) No. 29-2020.
A duly registered retirement plan, as contemplated under RR No. 29-2020, is when it has been issued a Certificate of Qualification as a Reasonable Employees’ Retirement Benefit Plan. The said certificate is issued by the BIR upon satisfaction of the conditions and prescribed requirements.
Only the amount received covered by the registered retirement plan will be exempt from Income Tax, provided that the retirement and the receipt of the retirement benefits are within the covered period. The amount in excess of what is within the retirement plan shall be taxable.
Under Sec. 32 (B) (6) of the Tax Code, as amended, retirement benefits received under RA No. 7641(Retirement Pay Law) are not to be included in the gross income of the recipient and are, therefore, tax exempt. The said law provided that, “In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared
the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire xxx.”
RR No. 29-2020 requires the submission of the list of recipients of retirement benefits and other income payments exempt from Income Tax paid by employers from June 5 to December 31, 2020. The employees included in the said list are still to be included in the Annual Alphabetical List of Employees required to be submitted on or before January 31 of each year since the Annual Alphabetical List reflects the income received by the said employees for the year, inclusive of retirement benefits and other income payments.