Deduction of Taxpayers' Association for Overseas Income; 5% Saving up to 1 mil.won
In the realm of taxation, a particular focus is placed on employees who are members of taxpayers' associations eligible for deductions.
The intricacies of these deductions are as follows:
Employees Affiliated with Deductible Taxpayers' Associations: This category encompasses individuals whose income is subject to payroll taxes and who are affiliated with taxpayers' associations that qualify for tax deductions.
Taxpayers' Association Deduction Amounts:
Pre-2019 Scenario: For income attributed to the year 2018 and earlier, the deduction was calculated as 10% of the assessed tax amount.
Post-2018 Adjustments: Commencing from the 2019 income year, this deduction was modified to 5%. This adjustment applies in two scenarios:
Monthly Collection: When taxes are collected monthly, 5% of the tax amount collected each month is considered for year-end adjustment.
Year-End Reconciliation: Instead of aggregating the monthly deductions, a year-end recalibration is performed, leading to a 5% deduction on the calculated tax amount.
Exclusive Tax Association Income: If only the income collected by the tax association is considered, the deduction is 5% of the assessed tax on this income.
Combined Regular and Taxpayers' Association Income: In cases where regular income and taxpayers' association-collected income are consolidated for year-end adjustment, the deduction applies to the tax association income. The entity responsible for withholding tax on regular income will include the taxpayers' association income in the year-end adjustment.
The taxpayers' association-collected income is factored into the total annual salary, which is the annual salary minus non-taxable income.
The deduction amount is then derived from the total income for the year, which includes both regular and taxpayers' association-collected income, after accounting for income deductions.
Documentation Requirements: For each month, the taxpayers' association-collected payroll income withholding receipt must be submitted.
Deduction Considerations:
Unreported or Pre-Membership Income: Income not reported to the taxpayers' association or earned before membership does not qualify for the deduction.
Foreign Workers: Foreign employees subject to a flat tax rate of 19% (17% from 2013 to 2016, and 15% from 2009 to 2012) are ineligible for this deduction.
Zero Monthly Tax Cases: Even in instances where an individual, having reported to the taxpayers' association for a particular month, finds themselves with no income tax due according to the simplified tax table, they may still be eligible for the deduction during the comprehensive income tax finalization or year-end adjustment.
This overview provides a detailed understanding of the tax deduction mechanisms for employees affiliated with taxpayers' associations, highlighting the nuances and documentation requirements pertinent to this process.
For more details, please feel free to reach out at jz@taxjz.com or If you would like a consultation with an English-speaking Consultant/Accountant in Korea, please schedule a call at: Schedule a Call with Jz
