What is the year-end tax adjustment in Korea?

In Korea, office workers do year-end tax adjustment in January of every year.

Year-end adjustment refers to getting a refund of the taxes I paid to the government, such as income tax. However, if you make a mistake, the government may take back the taxes it has not been able to take back through year-end tax adjustment.

Simply put, it refers to a system that closely examines an individual's income and consumption for one year, returns it if there is a reason to return the tax, and imposes more tax if it is not.

In particular, it is important to remember that the year-end tax adjustment is a system in which you get a refund within the total amount of tax you have paid for one year. If the total amount of tax paid by person A in 2021 is 1 million won, he can get a refund within that 1 million won.

However, depending on how well you take care of your year-end tax adjustment, you can get all of the 1 million won or only half of it back. On the contrary, it is very rare that you will have to pay more tax.

When doing year-end tax adjustment, the terms income deduction and tax deduction often appear, but it is necessary to understand them. These two words are words that even Koreans are confused about because they do not have an accurate understanding of the concept.

Income deduction

Income deduction refers to the deduction of a portion of the income that is subject to tax. So, if you say your income earned in a year is 10 million won, and you deducted 2 million won through year-end tax settlement, of course your total income will be 8 million won, so you can get 2 million won in tax back.

Income deduction includes contributions to the national pension, health (employment) insurance premiums, housing rentals, personal pension savings, home purchase savings, and credit card usage.

If you look at the 'income deductions such as credit cards' applied to most workers here, if you use more than 25% of your total salary, a certain percentage of the excess amount is deducted. Credit card 15%, cash receipt and check card 30%, book performance art museum, etc. 30%, and traditional market and public transportation 40%.

In the case of small and medium-sized enterprises (SMEs) employed, young people aged 15 to 34, aged 60 or older or disabled, and women with career interruptions are exempted from tax by 70% of earned income for 3 years from the date of employment, and up to 90% for young people for 5 years from the date of employment.

Tax credit

A tax credit is a direct deduction of tax. It can be seen that the effect is greater than the income deduction. There are several types of tax deductions.

First, if the head of a homeless household with a total salary of 70 million won or less pays monthly rent, 10% or 12% of the monthly rent payment (up to 7.5 million won per year) can be deducted as a tax credit. 12% for those with a total salary of KRW 55 million or less, and 10% for those with a total salary of KRW 70 million or less.

There is also a system that provides a tax credit for medical expenses, which deducts an amount exceeding 3% of the total salary, and a tax credit for 15% of the principal and interest repayment amount when repaying student loans.

The National Tax Service is continuously making efforts for the convenience of year-end tax adjustment. In particular, this year, it is piloting the 'simplified data package provision service' so that workers do not request and print data from the company or directly access and input the data on the National Tax Service website.

The National Tax Service has created explanatory materials in English, Chinese, and Vietnamese so that foreign workers can easily understand the complicated year-end tax settlement. You can check it out on this site.  www.nts.go.kr/english/main.do

However, not many Koreans know exactly about the year-end tax adjustment. Because it's incredibly complicated. Therefore, it is most convenient for foreign residents to take a look at the contents but leave it to the company's accountant. However, to the person in charge of accounting, “Are you having a lot of trouble with year-end adjustment? Is there anything I need to do?” If you ask only a few questions, you will hear that you are a sensible foreign worker.

Reporter Lee Jieun