Year-end tax settlement is often called “the 13th-month salary” in Korea, but it is really the process of adjusting the tax you prepaid over the year to the correct amount. Once you understand the principle, it becomes clear why you get a refund or owe more, and what you need to prepare.
Why year-end settlement happens
Each month when your employer pays you, it withholds income tax in advance according to the simplified withholding tax table and pays it to the state. The table gives a rough amount based only on your pay and number of dependents, so it doesn’t reflect personal circumstances over the year such as medical bills, education costs or card spending.
So after the year ends, the tax you actually owe (determined tax) is calculated with all of the year’s income and deductions and compared with the tax already paid (prepaid tax).
Determined tax > prepaid tax → you pay the difference (additional payment)
The settlement timeline
| When | What to do |
|---|---|
| Mid-January | HomeTax’s simplified settlement service opens; view and download deduction data |
| Late January – early February | Submit deduction forms and supporting documents to your employer (deadlines vary) |
| February payday | The settlement result is reflected (refund or additional withholding) |
| May | Deductions missed in settlement can be added through the comprehensive income tax return |
Some documents don’t appear in the simplified service. You must keep and submit receipts yourself for things like glasses, some school uniforms, monthly rent payments and some donations.
Income deductions vs tax credits
There are two main kinds of deduction, and the same amount has a different effect.
- Income deduction: reduces the amount taxed (the tax base). The tax actually saved is deduction × your tax rate.
- Tax credit: subtracted directly from the calculated tax. Tax falls by the amount of the credit.
For someone in the 15% bracket, a ₩1 million income deduction saves ₩150,000 in income tax plus ₩15,000 in local income tax — ₩165,000 in total.
A ₩1 million tax credit for the same person cuts tax by the full ₩1 million. But tax credits are usually set as “a percentage of spending”, so the credit amount itself is often small.
It also helps to remember that income deductions are worth more to high earners with higher tax rates, while tax credits are worth the same regardless of income.
Key deductions for employees
Income deduction for card spending
Deductions start from the part of a year’s card spending above 25% of total pay. The deduction rate depends on the payment method.
| Payment method | Deduction rate |
|---|---|
| Credit card | 15% |
| Debit card, cash receipts | 30% |
| Traditional markets, public transport | 40% |
Hence the common advice: use a credit card with good perks up to the 25% threshold, then switch to a debit card or cash receipts.
Tax credit for pension savings and IRP
Money put into pension savings and individual retirement pension (IRP) accounts earns a tax credit on up to ₩9 million a year combined. The credit rate is 16.5% if total pay is ₩55 million or less, and 13.2% above that (including local income tax). Filling the full ₩9 million cuts tax by up to ₩1.485 million, making it one of the most effective items in year-end settlement.
Tax credit for monthly rent
If you are a non-homeowning head of household with total pay under a set limit, you can get a tax credit on part of a year’s rent. Your resident registration must be at the address, and you need the lease and records of rent transfers. The landlord’s consent is not needed.
Tax credits for medical, education and insurance costs
- Medical expenses: 15% of spending above 3% of total pay. There is no limit for your own, over-65 and disability-related medical costs.
- Education: 15% of costs such as your own education, preschool children’s academy fees and university tuition.
- Protection-type insurance premiums: 12%, on up to ₩1 million a year.
Practical tips to get more back
- Claim each dependent only once: if a working couple both claim the same child or parent, the extra deduction is clawed back later with a penalty. It is usually better for the spouse with the higher tax rate to claim.
- Put medical costs on the lower earner: deductions start only above 3% of total pay, so concentrating them on the lower-earning spouse makes the threshold easier to pass.
- Make pension savings contributions before December ends: contributions made during the settlement period count for the next year. Pay in by 31 December of that year.
- Missed deductions can be claimed within 5 years: deductions left out of year-end settlement can be recovered through a correction claim on HomeTax within five years.
First check how much income tax is withheld each month
Calculate your take-home payDeduction limits and requirements can change every year with tax law amendments. Before filing, be sure to check the National Tax Service HomeTax guide for that year’s settlement.
References
- National Tax Service HomeTax simplified year-end settlement service
- National Tax Service year-end settlement guide