BIR Issues RMC 120-2020 Clarifying Tax Exemption Of Private Sector Employees Retiring Early

BIR issued RMC 120-2020 clarifying the tax exemption of private sector employees retiring early.

The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) 120-2020 clarifying the tax exemption of employees in the private sector who were retiring early.

This, as the retirement benefits received by an employee from a private firm who decided to retire early were exempted from income tax if an employee had rendered a minimum service of eight (8) years and was receiving the benefits before the end of the year.

BIR Exemption Retiring Early
Photo: Logo of Bureau of Internal Revenue

In a report on Manila Bulletin, BIR Commissioner Caesar Dulay explained that the retirement benefits were tax exempted even though an employee didn’t meet the length of service as prescribed in the approved employees’ retirement plan.

Dulay then came out with the explanation when he issued Revenue Memorandum Circular (RMC) 120-2020.

However, the retirement benefits was subject to income tax if the worker would receive the benefits in January 2021, which was beyond the coverage of RA 11494.

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In addition, the said memorandum circular also stated that the employee won’t be required to pay the said tax when he/she was rehired by the sister company of his former employer a year after his/her retirement.

However, the tax would be imposed if the related company reemployed him/her within a year upon retirement.

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