#KnowledgeSharing: Is the Terminal Leave Benefits (TLB) of government employees taxable?

Dear GABOTAF:

Is the terminal leave benefits (TLB) of government employees taxable? – LMM

Dear LMM:

Terminal leave pay refers to the cash value of an employee’s accumulated leave credits. It refers to the commutation of the leave credits intended for old age or separation from the service (Borromeo vs. CSC, 199 SCRA 911). It is given to government employees once they leave the government due to either resignation, retirement, or death.

In the case of Jesus N. Borromeo vs. The Hon. Civil Service Commission, et al., G.R. No. 96032, 31 July 1991, the Court explained the reason why terminal leave pay is exempt from income tax.

The decision states “commutation of leave credits, more commonly known as terminal leave, is applied for by an officer or employee who retires, resigns or is separated from the service through no fault of his own. In the exercise of sound personnel policy, the Government encourages unused leaves to be accumulated. The Government recognizes that for most public servants, retirement pay is always less than generous if not meager and scrimpy. A modest nest egg which the senior citizen may look forward to is thus avoided. Terminal leave payments are given not only at the same time but also for the same policy considerations governing retirement benefits. Thus, not being part of the gross salary or income of a government official or employee but a retirement benefit, terminal leave pay is not subject to income tax.

Kindly read the following references for more details:

Jesus N. Borromeo vs. The Hon. Civil Service Commission, et al., G.R. No. 96032, 31 July 1991

Florencio S. Jimenez vs. The Commissioner of the Internal Revenue, C.T.A Case No. 4640, July 14, 1992

Sincerely,

GABOTAF

P.S How about monetization of leave credits, is it taxable? Find the answer here.

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