Income Tax
Overview
Income tax is a tax imposed on the income earned by individuals over a certain period and is the core tax item accounting for the largest share of national taxes in South Korea. Through a progressive tax structure in which tax rates rise with the level of income, it performs the functions of income redistribution and fiscal revenue generation.
Main Content
Taxable Subjects of Income Tax
The Income Tax Act classifies individual income into six categories: interest income, dividend income, business income, earned income, pension income, and other income. Among these, interest, dividend, business, pension, and other income are aggregated as global income and taxed together, while earned income is calculated separately and taxed through withholding.
Structure of Income Tax Rates
Korea's income tax rates have a progressive structure ranging from 6% to 45% based on the taxable base. The top rate of 45% applies to high-income brackets exceeding 1 billion won, while lower brackets apply 6% to income up to 14 million won, operating a differentiated rate system by income class. The government periodically adjusts the taxable base brackets in consideration of inflation.
Income Tax Calculation Procedure
Income tax is calculated by subtracting tax-exempt income from total salary, then applying various deductions (earned income deduction, personal deduction, special income deduction, etc.) to derive the taxable base. The tentative tax amount is then calculated by multiplying the applicable tax rate to the taxable base, and tax credits such as child tax credits or pension account tax credits are reflected to determine the final tax payable.
Withholding and Global Income Tax Reporting
For earned income, the employer withholds tax monthly when paying wages and remits it to the state, so no separate filing is required. In contrast, business income or real estate rental income must be aggregated and paid through the final global income tax return filed in May of the following year. Global income tax returns can be conveniently filed online through HomeTax and similar systems.
Recent Trends
From 2024 to 2025, various adjustment proposals for the income tax system have been discussed in response to changes in the economic environment. With high inflation and economic downturn persisting, demands are growing for inflation-linked adjustments to the taxable base brackets, and the government is reviewing plans to expand income deductions and lower tax rates to ease the burden on low- and middle-income groups. In addition, the financial investment income tax, originally scheduled for implementation in 2025, has been deferred to 2027 due to market uncertainty and opposition, and tax support measures to promote investment are being discussed instead. Moreover, with the increase in freelancers and platform workers, the digital transformation of income tracking and taxation systems is accelerating, and the expansion of the earned income tax credit is emerging as a major task.
Related Topics
- [[Corporate Tax]]
- [[Value-Added Tax]]
- [[Global Income Tax]]
- [[Earned Income Tax]]