Tax deductions in Korea’s year-end settlement — are you claiming everything you’re entitled to? Even with the same salary, how you prepare can mean a difference of hundreds of thousands to millions of won in your refund. In this guide, we’ll walk you through the fundamentals of Korea’s year-end tax settlement (연말정산), from income deductions to tax credits, plus the commonly missed tax deductions that could save you real money.
What Is Year-End Tax Settlement (연말정산)?
Year-end tax settlement is the process of reconciling the income tax that was withheld from your salary throughout the year. After reviewing your total income and eligible tax deductions for the year, you either get a refund (if you overpaid) or owe additional tax (if you underpaid).
Think of it as your chance to get a “13th month paycheck” — or, if you’re not careful, a “13th month tax bill.” The result depends entirely on how thoroughly you claim your eligible tax deductions.
Year-end tax settlement takes place every January, covering the previous year’s income and expenses (January–December). You can automatically retrieve most of your deduction records through the NTS Hometax (hometax.go.kr) simplified service.
Income Deductions vs Tax Credits: What’s the Difference?
Tax deductions in Korea’s year-end settlement fall into two main categories: income deductions (소득공제) and tax credits (세액공제). Understanding the difference is the first step to maximizing your refund.
| Type | Income Deduction (소득공제) | Tax Credit (세액공제) |
|---|---|---|
| How it works | Reduces your taxable income | Directly reduces the tax you owe |
| Effect | Greater benefit for higher earners | Fixed deduction regardless of income |
| Examples | Personal exemption, credit card deduction | Medical, education, donation, monthly rent |
Let’s use numbers to make the difference clear. First, here are Korea’s income tax brackets.
| Taxable Income (annual) | Tax Rate |
|---|---|
| ≤ ₩14M | 6% |
| ₩14M – ₩50M | 15% |
| ₩50M – ₩88M | 24% |
| ₩88M – ₩150M | 35% |
| ₩150M – ₩300M | 38% |
| ₩300M – ₩500M | 40% |
| ₩500M – ₩1B | 42% |
| > ₩1B | 45% |
The key point is that your tax savings from income deductions depend on which bracket your income falls in. Let’s say worker A has a taxable income of ₩52 million.
₩3 million income deduction: Taxable income drops from ₩52M to ₩49M. Income deductions effectively remove income starting from your highest tax bracket.
| Bracket | Before (₩52M) | After (₩49M) |
|---|---|---|
| ≤ ₩14M (6%) | ₩840,000 | ₩840,000 |
| ₩14M–₩50M (15%) | ₩5,400,000 (₩36M × 15%) | ₩5,250,000 (₩35M × 15%) |
| ₩50M–₩52M (24%) | ₩480,000 (₩2M × 24%) | ₩0 (no longer in this bracket) |
| Total tax | ₩6,720,000 | ₩6,090,000 |
The ₩3M deduction saved ₩630,000 in tax. Of that ₩3M, ₩2M was removed from the 24% bracket and ₩1M from the 15% bracket. The higher your tax bracket, the more each won of income deduction saves you.
₩3 million tax credit: Regardless of brackets, the full ₩3 million is subtracted directly from the tax bill. A flat ₩3,000,000 saved.
In this example, a ₩3M tax credit (₩3M saved) clearly beats a ₩3M income deduction (₩630K saved). But income deductions can overtake tax credits when the amounts are large enough. For example, a high earner in the 35% bracket (taxable income ₩100M) receiving a ₩10M income deduction saves ₩10M × 35% = ₩3,500,000 — more than a ₩3M tax credit.
Income deductions lower the amount your tax is calculated on, while tax credits reduce the actual tax bill. You need to claim both to maximize your year-end tax refund.
Key Income Tax Deductions (소득공제)
Among all tax deductions categories, income deductions reduce your taxable income — the base amount on which your tax is calculated. Here are the major items. Note that specific limits and conditions may change each year, so always verify the latest standards on the NTS year-end settlement guide.
1. Personal Exemption (인적공제)
You can deduct ₩1.5 million per person for yourself, your spouse, and qualifying dependents. This is the most basic tax deductions item, but you need to verify the eligibility requirements (age and income limits) for each dependent.
- Yourself: Automatic deduction
- Spouse: Annual income ≤ ₩1 million (or gross salary ≤ ₩5 million if wage earner only)
- Parents: Age 60+ and annual income ≤ ₩1 million
- Children: Age 20 or under and annual income ≤ ₩1 million
- Siblings: Age 20 or under, or age 60+, and annual income ≤ ₩1 million
2. Credit Card Spending Deduction
This is the tax deductions item that salaried workers feel most directly. You can claim a deduction on spending that exceeds 25% of your gross salary.
| Payment Method | Deduction Rate |
|---|---|
| Credit card | 15% |
| Debit card / Cash receipts | 30% |
| Traditional markets / Public transportation | 40% |
Just as important as the deduction rate is the deduction cap. No matter how much you spend, you can’t deduct beyond the limit.
| Gross Salary | Basic Cap | Additional Cap (traditional market, transit, culture) |
|---|---|---|
| ≤ ₩70M | ₩3M | Up to ₩1M each, max ₩3M additional |
| ₩70M – ₩120M | ₩2.5M | Traditional market & transit ₩1M each, max ₩2M additional |
| > ₩120M | ₩2M | Traditional market & transit ₩1M each, max ₩2M additional |
For example, a worker earning ≤ ₩70M can deduct up to ₩3M basic + ₩1M traditional market + ₩1M public transit + ₩1M culture (books, performances, movies) = ₩6M maximum. The culture spending bonus only applies to those earning ≤ ₩70M. Check the latest caps on the NTS year-end settlement guide.
Example: Worker B earns ₩40 million and spent ₩15 million on cards last year. The first 25% of salary (₩10 million) isn’t eligible, so ₩5 million qualifies. If B used only credit cards: ₩5M × 15% = ₩750,000 deduction. If B used only debit cards: ₩5M × 30% = ₩1,500,000 deduction — double the amount.
Practical tip: Since the first 25% of your salary isn’t eligible anyway, use your credit card (for reward points and cashback) until that threshold, then switch to debit cards or cash receipts for the higher 30% deduction rate. However, if you spend enough on credit cards alone to hit the basic cap (₩3M), there’s no benefit in switching — just keep enjoying your credit card rewards. Traditional market, public transit, and culture spending have separate bonus caps, so those are still worth tracking. Your card usage habits also affect your credit score, so manage both together.
3. Housing-Related Deductions
- Housing subscription savings (주택청약): For non-homeowners with gross salary ≤ ₩70 million, 40% of contributions deductible (up to ₩3 million/year, raised from ₩2.4M starting with 2025 income year)
- Jeonse loan repayment: Principal and interest payments on jeonse deposit loans
- Mortgage interest: Interest payments on long-term housing loans
Key Tax Credits (세액공제)
Tax credits are subtracted directly from your calculated tax, so the impact is more immediate. Here are the main tax deductions in the credit category.
1. Medical Expense Credit
You can claim a 15% tax credit on medical expenses exceeding 3% of your gross salary, for yourself and dependents. Infertility treatment qualifies for a higher 30% credit rate.
Note: Cosmetic procedures and health supplements are not eligible.
2. Education Expense Credit
A 15% tax credit applies to education expenses for yourself, children, and dependents.
- Yourself: Including graduate school, no limit
- Pre-school children: Up to ₩3 million per child/year
- Elementary through high school: Up to ₩3 million per child/year
- University students: Up to ₩9 million per child/year
3. Donation Credit
Tax deductions are available for statutory donations, political contributions, and designated donations. 15% credit on the first ₩10 million, 30% on amounts exceeding ₩10 million.
4. Monthly Rent Credit
Non-homeowners with gross salary ≤ ₩80 million can claim a tax credit on monthly rent payments (income threshold raised from ₩70M starting with 2025 income year). The rate is 17% for those earning ≤ ₩55 million, and 15% for those earning ₩55–80 million. The annual cap is ₩10 million (raised from ₩7.5M).
Practical tip: Keep your lease contract and bank transfer records as proof. You can claim this credit without your landlord’s consent.
5. Pension Savings & IRP Credit
Contributions to pension savings (연금저축) and IRP (Individual Retirement Pension) qualify for tax deductions in the form of credits.
| Product | Annual Limit | Credit Rate |
|---|---|---|
| Pension savings | ₩6 million | Salary ≤ ₩55M: 16.5%, above: 13.2% |
| Pension + IRP combined | ₩9 million | Same rates |
With pension savings alone, you could save up to ₩990,000 in taxes per year (₩6M × 16.5%). Add IRP and the maximum reaches ₩1,485,000 (₩9M × 16.5%). Combining tax deductions with safe savings products makes your financial plan even more effective.
5 Commonly Missed Tax Deductions
Beyond the standard tax deductions listed above, many people miss these eligible items every year. Check if any apply to you.
- Glasses and contact lenses: Eligible for the medical expense credit, up to ₩500,000 per person per year. Keep your purchase receipts.
- School uniforms for middle/high school students: Eligible for the education expense credit, up to ₩500,000 per student per year.
- Parents’ medical expenses: If your parents meet the income requirement, you can claim their medical expenses. Only one sibling can claim, so coordinate with your family.
- Monthly rent credit: Many eligible renters don’t apply. Up to ₩10 million in annual rent qualifies — check if you meet the conditions.
- Carried-over donation credits: If you didn’t use your full donation credit limit this year, you can carry it forward for up to 10 years. Don’t throw away your donation receipts.
Year-End Tax Settlement Preparation Checklist
Here’s a timeline to prepare your tax deductions effectively throughout the year and maximize your refund.
| When | What to Do |
|---|---|
| Early year (Jan–Feb) | Download deduction records from Hometax simplified service |
| Early year (Jan–Feb) | Prepare any receipts missing from the simplified service (glasses, uniforms, etc.) |
| Mid-year (Mar–Nov) | Adjust your debit card vs credit card spending ratio |
| Mid-year (Mar–Nov) | Plan and execute pension savings/IRP contributions |
| Year-end (Dec) | Check remaining contribution limits and make final deposits (pension, donations) |
| Year-end (Dec) | Organize medical and education expense receipts |
The NTS Hometax (hometax.go.kr) simplified service opens every January 15. Any tax deductions items not shown in the system must be prepared manually with receipts.
Source: National Tax Service (국세청)
Recent Tax Deductions Changes (2025–2026 Income Years)
Tax deductions rules change every year with tax law revisions. Here are the key changes that took effect starting from the 2025 income year and continue to apply to your 2026 income (to be settled in January 2027).
Newly Introduced (From 2025 Income Year)
| Item | Details | 2026 Income Year |
|---|---|---|
| Gym & pool fees deduction | 30% deduction on gym/swimming pool fees (gross salary ≤ ₩70M, within culture spending bonus cap) | ✅ Still applies |
| Marriage tax credit | ₩1 million credit per couple for marriages registered 2024–2026 (once per lifetime) | ✅ Applies through 2026 registrations |
| Early elementary school academy fees | Art/sports academy fees for children under age 9 or in 2nd grade or below now eligible for education expense credit | ✅ Still applies |
Expanded Benefits (From 2025 Income Year)
| Item | Previous (2024 income) | Current (2025–2026 income) |
|---|---|---|
| Child tax credit | 1st: ₩150K, 2nd: ₩200K, 3rd+: ₩300K | 1st: ₩250K, 2nd: ₩300K, 3rd+: ₩400K |
| Monthly rent credit income limit | Gross salary ≤ ₩70M | Gross salary ≤ ₩80M |
| Monthly rent credit cap | ₩7.5M/year | ₩10M/year |
| Housing subscription deduction cap | ₩2.4M/year | ₩3M/year |
| Childbirth/childcare allowance | ₩200K/month (regardless of children) | ₩200K/month per child |
All of the above changes continue to apply to your 2026 income. If you’re planning to get married this year, don’t miss the marriage tax credit — it applies to registrations through the end of 2026. Gym and swimming pool fees are also deductible, so keep your card payment records.
Korea’s 2026 tax reform proposal is typically announced in July, and additional changes may follow. This article will be updated when new reforms are confirmed. For current standards, visit the NTS Year-End Settlement Guide.
Tax Deductions FAQ
Q. How should dual-income couples handle year-end settlement?
Generally, the higher earner should claim the personal exemptions since income deductions have a greater effect at higher tax brackets. However, medical expenses are only deductible above 3% of gross salary, so it may be better for the lower earner to claim medical expense tax deductions. Run simulations together to find the optimal combination.
Q. Do mid-year joiners or leavers need to file?
Yes. Mid-year joiners should file through their current employer, submitting their previous employer’s withholding tax receipt. Mid-year leavers receive a basic settlement at departure, but can claim additional tax deductions during the comprehensive income tax filing period in May.
Q. What if I made a mistake in my settlement?
If you missed tax deductions or filed incorrectly, you can correct it during the May comprehensive income tax filing period. Through Hometax, you can file an amended return and claim refunds for up to 5 years back.
Key Takeaways
- Income deductions reduce taxable income; tax credits reduce the tax directly. Claim both thoroughly.
- After the 25% salary threshold, switch to debit cards and cash receipts for a higher deduction rate — but if you’ve already hit the basic cap, keep your credit card rewards.
- Pension savings and IRP are the most efficient way to save for retirement and reduce taxes simultaneously.
- Don’t miss commonly overlooked tax deductions: monthly rent, glasses, school uniforms.
- Receipts not found in the Hometax simplified service must be prepared manually.
Year-end tax settlement repeats every year, but once you organize it properly, it gets much easier. Check your tax deductions status on Hometax right now and start preparing.
Disclaimer: This article is for informational purposes only and does not constitute tax advice. Deduction limits and conditions may change each year. Please verify the latest standards on the National Tax Service (nts.go.kr) or Hometax (hometax.go.kr). For specific tax matters, consult a qualified tax professional.
