[Korea Tax Common Sense Series 2] How salary tax is deducted (Local tax 10%)

Monthly Salary Taxes: How They're Deducted (Including 10% Local Tax)

"Salary = Gross Pay - Deductions + Non-Taxable Income" is the basic structure.

Key Summary

• Withholding tax consists of income tax + local income tax (10% of national tax).
• The 4 major insurances (pension, health, long-term care, employment) are also deducted.
• Year-end tax adjustment is done once a year. Understanding this structure now will make the whole process easier.

Terms Explained Simply

• Withholding Tax: Tax that the company deducts first and sends to the government.
• Income Tax: The basic tax calculated from your taxable salary.
• Local Income Tax: An additional tax of 10% of the income tax, paid to the local government.
• Non-Taxable Income: Amounts legally excluded from taxation (e.g., meal allowance KRW 200,000/month, etc.).
• Payslip: The official document showing gross pay, deductions, and non-taxable income at a glance.

30-Second Check

• Does your payslip show distinctions for ‘Gross Pay / Deductions / Non-Taxable’?
• Is the local income tax calculated as exactly 10% of the income tax?
• Are non-taxable items like meal allowances or car allowances reflected?
  👉 If you answered yes to 3 or more items, you're close to understanding the structure.

Points That Change

• The refund amount can vary by tens of thousands to hundreds of thousands of won depending on non-taxable income and dependents.
• The structure remains the same even for bonus months; only the amounts change.
• If items are omitted, you may face additional payments or need to submit supplementary documents.

Case Comparison

• Scope of Application: A: No dependents, regular employee vs B: Spouse + 1 child
• Key Difference: The tax structure is the same (10% local tax), but the amount of deductions and non-taxable income differs.
• Actual Impact: For B, increased deductions lower the taxable income, leading to a relatively higher potential for refund.

What to Do Now

1. On your payslip, check the breakdown for Gross Pay / Deductions / Non-Taxable items.
2. Calculate and verify if the local tax is 10% of the income tax.
3. Check if non-taxable items like meal allowances (KRW 200,000/month) are actually entered.
4. Confirm if all 4 types of 4 major insurances are listed.
5. For the next article, gather receipts for medical, educational, and donation expenses in a folder.

Practical Examples

• A: No dependents, minimal non-taxable income (only meals) → Local tax is 10% of income tax; little room for refund.
• B: Spouse + 1 child, abundant non-taxable income and deductions → Taxable income decreases, refund potential increases.

Confusing Points

• “The company knows best” → Employee verification is essential; errors lead to personal disadvantages.
• “Local income tax is calculated separately” → It’s automatically linked as 10% of the income tax.
• “Non-taxable income is all zero” → You can legally reduce it based on items and limits (e.g., meal allowance up to KRW 200,000/month).

Next Article

• Year-End Tax Adjustment: How the Once-a-Year Process Impacts Your Salary Tax Refund