A Complete Guide to Personal Deductions in Korea
Navigating Korea’s tax system can seem complex, but understanding personal deductions can help reduce your taxable income and maximize your refund. Whether you're a local resident or a foreign worker, this guide covers everything you need to know about personal deductions in Korea.
📌 What Are Personal Deductions?
Personal deductions are specific allowances you can claim during your year-end tax settlement to lower your taxable income. These deductions cover various aspects of your financial responsibilities, such as family dependents, insurance premiums, and more.
✅ Types of Personal Deductions in Korea
1. Basic Personal Deduction
Every taxpayer is eligible for a standard deduction:
KRW 1.5 million for the taxpayer.
Additional deductions for dependents (spouse, children, parents).
2. Dependent Deduction
You can claim deductions for dependents in your family if they meet the following criteria:
Spouse: Must have an annual income of less than KRW 1 million.
Children: Must be unmarried and under 20 years old.
Parents: Must be over 60 years old and earn less than KRW 1 million annually.
Disabled Family Members: No age or income restrictions apply for registered disabled dependents.
Deduction Amount: KRW 1.5 million per dependent.
3. Medical Expense Deduction
You can claim deductions for out-of-pocket medical expenses for yourself and your dependents:
Deduction Threshold: Only expenses exceeding 3% of your total income are deductible.
Eligible Expenses: Hospital visits, surgery, prescription medications, dental care, and traditional Korean medicine.
Special Case: No threshold applies to medical expenses for pregnant women or serious illnesses.
Deduction Limit: Unlimited for severe illnesses; up to KRW 7 million for general cases.
4. Education Expense Deduction
Korea allows deductions for education-related expenses, including:
Tuition fees for children or yourself.
Private academies (학원) for preschool-aged children.
Children studying abroad at recognized institutions.
Deduction Amounts:
Up to KRW 3 million for preschool education.
Up to KRW 9 million for university tuition.
5. Insurance Premium Deduction
Premiums paid for national health insurance, private health insurance, and life insurance are eligible for deductions:
National health insurance is automatically reflected in your tax settlement.
Private insurance requires proof of payment.
Deduction Limit: Up to KRW 1 million.
6. Charitable Donation Deduction
Contributions to eligible charities or organizations can also be deducted:
General Donations: Deductible up to 15% of your donation.
Political Donations: Deductible up to 25%.
Important: Keep donation receipts for documentation.
7. Housing-Related Deductions
Monthly Rent Deduction: Renters may deduct up to KRW 7.5 million annually.
Mortgage Interest Deduction: Homeowners can deduct interest paid on mortgage loans.
8. Retirement Savings Contribution Deduction
Contributions to government-approved retirement plans or private pensions are deductible:
Up to KRW 4 million for eligible retirement accounts.
9. Special Deductions for Foreign Workers
Foreigners working in Korea may choose between:
Flat Tax Rate: A 20.9% flat income tax rate without additional deductions.
Standard Taxation: Applying regular deductions for dependents, housing, and other personal expenses.
📝 How to Apply for Personal Deductions
Gather Supporting Documents:
Birth certificates, marriage certificates, or family registers for dependents.
Medical receipts, tuition invoices, and insurance payment records.
Donation receipts or housing contracts.
Submit Through Hometax or Employer:
Most employers handle year-end tax settlements. You can submit your receipts via Korea’s Hometax platform.
Consult a Tax Professional:
For complex cases, especially as a foreigner, consult a tax advisor familiar with Korea’s tax laws.
🚨 Key Considerations and Limitations
Language of Documents: If your receipts are in a foreign language, provide a certified translation.
Deduction Caps: Some deductions have annual limits. Check the cap for each category.
Documentation Accuracy: Ensure all documents are accurate and match your application.
🔑 Conclusion
Personal deductions in Korea can significantly reduce your taxable income, resulting in a larger refund or lower tax bill. By understanding your eligibility and preparing documentation in advance, you can take full advantage of Korea's tax benefits. Whether you’re supporting family members, saving for retirement, or managing medical expenses, make sure you claim all available deductions during your year-end tax settlement.
Frequently Asked Questions (FAQs)
Q1: Can foreign workers claim personal deductions in Korea? Yes, foreign workers can claim personal deductions if they meet the eligibility criteria for dependents, expenses, and other requirements.
Q2: Are deductions automatically applied? Some, like national health insurance, are automatically reflected, but others (e.g., medical expenses, donations) require proof of payment.
Q3: Can I claim deductions for dependents living outside Korea? Yes, in some cases, but you must provide translated and notarized documents proving their status as dependents.
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