Korea

The national currency is the Won (KRW). In 2021, KRW 1 144.56 were equal to USD 1. In that year, the average worker was expected to earn KRW 47 021 176 (Secretariat estimate).

Each individual is taxed on his/her own income.

Non-taxable wage income includes the:

  • National pension, National health insurance, Employment insurance and Workers’ compensation insurance that are borne by employer;

  • Overtime payment to productive workers: up to KRW 2 400 000 of overwork payment of productive workers in manufacturing and mining sectors whose monthly wage is less than KRW 2 100 000 and whose yearly wage is less than KRW 30 000 000.

  • Employment income deduction: the following deduction (up to KRW 20 000 000) from gross income is provided to wage and salary income earners:

  • Basic allowance: a taxpayer can deduct KRW 1 500 000 from his/her income for each person who meets one of following conditions:

    • the taxpayer him/herself;

    • the taxpayer’s spouse whose taxable income (gross earnings net of employment income deduction) is less than KRW 1 000 000 (Spouse only have a salary earned income is less than KRW 5 000 000);

    • the taxpayer’s (including the spouse's) dependents (parents, siblings, children) within the same household whose income after accounting for the employment income deduction is less than KRW 1 000 000 (Dependent only have a salary earned income is less than KRW 5 000 000) and whose age is:

      1. 1. parents: 60 years or older;

      2. 2. brother/sister: 60 years or older or 20 years or younger;

      3. 3. children: 20 years or younger (if both partners in the household earn wage-income, this Report assumes that the principal wage earner will claim the allowance).

  • Additional allowance: a taxpayer can deduct KRW 1 000 000 (500 000 in the case of (c), KRW 2 000 000 in the case of(b))from his/her gross income when the taxpayer or his/her dependents fall into one of the following categories (for this report, only cases (c) and (f) are modelled):

    • a person aged 70 years or older(a)

    • a handicapped person (b)

    • a female wage earner who is the head of a household with dependents (but without spouse) or a female wage earner with spouse when her taxable income is not more than KRW 30 million(c)

    • a single parent with descendants including adoptees*(f)

    • * Overlapping of deductions for (c) and (f) is not allowed. So a taxpayer should select only one.

  • National pension deduction: employees can deduct 100% of their National Pension contributions

  • Insurance premiums: the National health insurance premium and the Employment insurance premium can be entirely (100%) deducted from taxable income.

  • Working Tax credit: wage and salary income earners obtain the following tax credit:

Wage and salary income earners may deduct from gross income the expenses for the following items during the tax year:

  • Saving/Payment for housing: 40% of deposits of an account for purchasing a house, which is held by a person who does not own a house, and 40% of repayments of loans including interest borrowed in order to lease a house smaller than 85 square meters in size by a person owning no house may be deducted up to three million won per year.

  • Credit card purchases: Employees may deduct 15% of their credit card (30% of their debit card, prepaid card or cash receipt) purchases that exceed 25% of their total income up to the lesser of KRW 3 000 000 or 20% of their total income in the case of the total income not over KRW 7 000 000 (up to the lesser of KRW 2 500 000 or 20% of their total income in the case of the total income from over KRW 70 000 000 to KRW 120 000 000 and up to the lesser of KRW 2 000 000 or 20% of their total income in the case of the total income over KRW 120 000 000) However, for expenditures spent for traditional markets and public transportation the allowed deduction is equivalent to 40% (30% for the expenditures of books, performances, and museums) of the expenditure and the ceiling is raised by an additional KRW 1 000 000 respectively.

  • Where a resident with taxable income has dependent children from 7 years old including adoptee, he/she gets annual tax credit of KRW 150 000 for having a child, KRW 300 000 for having two children and KRW 300 000 plus KRW 300 000 per an excess child over two children in case of having more than three children.

  • Resident gets tax credit of KRW 300 000 for the first child, KRW 500 000 for the second Child, andKRW 700 000 for the third child or more for birth and adoption of the year.

  • A resident who paid pension contributions to a pension account may deduct the amount equal to 12% of the premiums paid from his/her global income tax amount, only up to KRW 4 million for pension savings account as well as KRW 7 million for sum of the pension savings account and retirement pension account.

  • A resident whose labour income is not exceeding KRW 55 million when he has labour income only or whose global income is not exceeding KRW 40 million would deduct 15% of the premium.

Wage and salary income earners may obtain following tax credit during the tax year:

  • Insurance premiums (a): 12% of the general insurance premium up to KRW 1 000 000 can be deducted from his/her income tax amount.

  • Medical expenses (b): 15% of the medical expenses exceeding 3% of taxable income can be deducted from his/her income tax amount. The medical expenses for taxpayer’s dependents who are eligible for the basic deduction are limited to KRW 7 000 000 and the medical expenses for the taxpayer himself, taxpayer’s dependents who are aged 65 years or older and handicapped persons are not limited.

    • In addition, 20% of medical expenses for the treatment of infertility can be deducted from his/her income tax amount. There is no deduction limitation.

  • Educational expenses (c): 15% of tuition fees for pre-school, elementary, middle school and college (but the graduate school fee deduction is allowed only for the taxpayer himself), either for the taxpayer himself or his/her dependents (including the taxpayer's spouse, children, and siblings), can be deducted from his/her income tax amount. The tuition fee for the taxpayer himself is not limited. For the taxpayer’s dependents, the limits of tuition fees are as follows:

    • For pre-school: up to KRW 3 000 000 per child;

    • For elementary, middle and high school: up to KRW 3 000 000 per student;

    • For college/university: up to KRW 9 000 000 per student.

  • Charities (d):15% of the amount of donation (in case of the donation exceeding KRW 10 000 000, 30% of the excess amount over KRW 10 million) is deducted from income tax amount. The limits of donations are as follows:

    • donations to a government body, donations for national defence, natural disaster, and certain charitable associations: up to gross income;

    • donations to public welfare or religious associations: up to 30% of gross income.

  • Standard Credits: Alternatively, a taxpayer may choose an annual standard credit of KRW 70 000 (KRW 130 000 for wage and salary earners and KRW 120 000 for business owners meeting certain requirements), if he or she fails to claim deductions for insurance premium, saving/payment for housing and special tax credit.

The local income tax base is the income tax paid to the central government.

A uniform rate of 10% is applied. However, the local government can adjust the rate between the lower limit of 5% and the upper limit of 15%.

A country-wide rate of 10% is used in this Report.

The National pension contribution rate is 4.5% of the standardised average monthly wage income as of 2020.

The scope of the standardised average monthly wage income is from KRW 330 000 to KRW 5 240 000 as of 1 July 2021.

If the average monthly wage income of a person is less than KRW 330 000, the average monthly wage income of the person is regarded as KRW 330 000 and the rate (0.045) is applied. If the average monthly wage income of a person is more than KRW 5 240 000, the average monthly wage income of the person is regarded as KRW 5 240 000 and the rate (0.045) is applied; so the minimum of the national pension contribution per year is KRW 178 200 (KRW 330 000 x 0.045 x 12 months), and the maximum of the national pension contribution per year is KRW 2 829 600 (=KRW 5 240 000 x 0.045 x 12 months).

The National health insurance premium, which has a rate of 3.825136 % (National health insurance: 3.43 %, Long term care insurance 11.52 % of National Health insurance premium rate), is levied on average monthly wage income as of 1 January 2021.

The scope of the monthly National health insurance premium (excluding Long term care insurance premium) is from KRW 9 570 to KRW 3 523950. To include Long term care insurance, we should multiply 1.1152. Thus, the scope of the total monthly premium is from KRW 10 672 to 3 929 909. If the calculated premium is less than KRW 10 672, the worker should pay KRW 10 672. Likewise, if the calculated premium is more than KRW 3 929 909, the worker only pays KRW 3 929 909.

0.8% of gross income as of 1 October 2019.

Compulsory application, premiums paid only by employers.

The national pension contribution rate is 4.5% of the standardised average monthly wage income as of 2020.

The scope of the standardised average monthly wage income is from KRW 330 000 to KRW 5 240000 as of 1 July, 2021.

If the average monthly wage income of a person is less than KRW 330 000, the average monthly wage income of the person is regarded as KRW 330 000 and the rate (0.045) is applied. If the average monthly wage income of a person is more than KRW 5 240 000, the average monthly wage income of the person is regarded as KRW 5 240 000 and the rate (0.045) is applied; so the minimum of the national pension contribution per year is KRW 178 200 (KRW 330 000 x 0.045 x 12 months), and the maximum of the national pension contribution per year is KRW 2 829 600 (=KRW 5 240 000 x 0.045 x 12 months).

The National health insurance premium, which has a rate of 3.825136 % (National health insurance 3.43 %, Long term care insurance: 11.52 % of National health insurance premium rate), is levied on average monthly wage income as of 1 January, 2021.

The scope of the monthly National health insurance premium (excluding Long term care insurance premium) is from KRW 9 570 to KRW 3 523 950. To include Long term care insurance, we should multiply 1.1152. Thus, the scope of the total monthly premium is from KRW 10 672 to 3 929 909. If the calculated premium is less than KRW 10 672, the employer should pay KRW 10 672. Likewise, if the calculated premium is more than KRW 3 929 909, the employer only pays KRW 3 929 909.

  • the insurance premium is between 1.05% and 1.65% of total wage as of 1 October 2019;

  • the insurance premium selected for this study is 1.05%.

  • the insurance premium consists of an industry-specific rate which is set by the Ministry of Employment and Labor multiplied by total wage;

  • the average rate of all industries (announced by the Ministry of Employment and Labor and selected for this study) is 1.53 %.

  • Child Benefit

Child home care allowance is granted every month to those who have children aged 6 years or younger: KRW 200 000 for a child aged 12 months or younger, KRW 150 000 for a child aged 1 to 2 years and KRW 100 000 for a child aged 2 to 6 years.

If a child attends a nursery or pre-school, monthly childcare service voucher is provided instead of the child home care allowance. The amount of the benefit differs by the age of the child, type of nursery, class of nursery etc.

On top of those two benefits, universal child benefit of KRW 100 000 is paid monthly to those who have children if the child is under the age of 7.

  • Due date of payment for 2019’s income tax has been deferred from 1 June 2020 to 31 August 2020.

  • Deduction rate for credit card purchases has been increased temporarily. On March, the deduction rate of the credit card purchases is 30%, the deduction rate of the debit card, prepaid card and cash receipt purchases is 60%, the deduction rate of the expenditures for books, performances and museums is also 60%, and the deduction rate of the expenditures for traditional markets and public transportation is 80%. From April to July, all of the deduction rates are increased to 80% respectively. On top of that, limitation of deduction has been raised. The limitation of deduction is the lesser of KRW 3 300 000 (originally 3 000 000) or 20% of their total income in the case of the total income not over KRW 70 000 000 (the lesser of KRW 2 800 000 (originally 2 500 000) or 20% of their total income in the case of the total income from over KRW 70 000 000 to KRW 120 000 000, and the lesser of KRW 2 300 000 (originally 2 000 000 for 2020) or 20% of their total income in the case of the total income over KRW 120 000 000). Moreover, if the size of purchase has been increased over 5% in 2021 compared to 2020, 10% of such excess can also be deducted, up to KRW 1 000 000.

  • Monthly payment of the National pension can be exempted for 3 times between Mar 2020 and Jun 2020 and 9 times between Jan 2021 to Sep 2021, when he/she meets specific conditions(e.g. the income has been decreased).

  • The National health insurance premium is reduced from Mar 2020 to May 2020 for some workers. Criterions such as the size of income and the place where he/she works are considered when deciding the rate of reduction (30% or 50%),

  • Monthly payment of the Employment insurance premium and Workers’ compensation insurance premium for Mar 2020 to May 2020, Jan 2021 to Mar 2021, Apr 2021 to Jun 2021 and Jul 2021 to Sep 2021 is deferred for 3 months respectively, when the employee works for the company that employed workers less than 30.

  • A company that employed workers less than 30 can also get a 30% relief of Workers’ compensation insurance premium from Mar 2020 to Aug 2020 and from Jan 2021 to Mar 2021.

  • On March 2020, additional ‘childcare coupons’ that worth KRW 400 000 are provided per child to households with children aged less than 7 years as of Mar 2020, to help address challenges caused by the COVID-19 outbreak.

  • Sectors used: industry Sectors B-N with reference to the International Standard Industrial Classification of All Economic Activities, Revision 4 (ISIC Rev.4).

Geographical coverage: whole country.

Type of workers: wage workers (male and female).

Establishment Labor Force Survey (ELFS) by the Ministry of Employment and Labor is used to calculate the AW. The statistics were obtained through a sample survey of approximately 13 000 firms with one or more permanent employees throughout the whole country.

Basic method of calculation used: average monthly wages multiplied by 12.

An employer should pay to a retiree the retirement payment which is not less than 30 days’ wage and salary per one year of service (about 8.3% of gross income or more). An employer can contribute to the Retirement Payment Reserve Fund established within the company or Retirement Insurance Fund established outside the company to prepare for the retirement payment. Such contribution is treated as business expense under certain constraints. Because contribution to the Retirement Fund is not compulsory, this survey does not include such contribution except the contribution converted to employer's contribution to the national pension plan (see Section 2.2.1).

2021 Parameter values

2021 Tax equations

The equations for the Korean system are independent between spouses except that the principal earner has tax allowances for the spouse and for any children.

The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables married and children. A reference to a variable with the affix total indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with spouse values taken as 0.

Metadata, Legal and Rights

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Extracts from publications may be subject to additional disclaimers, which are set out in the complete version of the publication, available at the link provided.

© OECD 2022

The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at https://www.oecd.org/termsandconditions.