Understanding Your Paycheck: Wage Income Tax and Year-End Settlement

1) Step 1: Monthly tax withholding (at source)

Employer = withholding agent: Your company withholds income tax from each paycheck using the official wage tax table.
Family dependents count: The table reflects your pay and the number of dependents you reported.
Payment to NTS: Withheld tax is remitted by the 10th of the following month with a status report.

Why? It spreads your annual tax over 12 months—no huge bill at year-end.

2) Step 2: Year-end settlement (final score)

Withholding is an estimate. Each February, your employer performs the year-end settlement to reflect your annual facts: income, deductions, and tax credits.

Final tax (refund/pay) = Determined tax − Prepaid (withheld)

Refund: Withheld > determined → difference returned in payroll.
Additional payment: Withheld < determined → difference collected.

Timing: Typically processed with the February payroll for the prior year’s income.

3) NTS simplified service (how to use)

Every mid-January, the National Tax Service opens a simplified year-end service that aggregates your deductible/credit data (by resident or foreigner registration number).

Medical, education, insurance, donations, credit/debit card spend, etc.
Download/authorize data for your employer’s settlement process.

Exact available items and formats may vary by year and provider submissions.

4) Progressive tax rates—why deductions matter

Korea’s individual income tax is progressive (roughly 6% → 45% by brackets) plus local income tax (10% of national tax). Lowering your tax base via deductions/credits can meaningfully trim tax—especially when your income touches a higher bracket.

Takeaway: Track deductible receipts during the year to avoid missing refunds in February.

5) One-page payslip example (numbers)

Example — Single employee, monthly gross KRW 4,000,000

Item	Illustration
Gross pay	KRW 4,000,000
Withholding (income tax + local)	Applied per tax table (depends on dependents)
4 social insurances	Employee shares deducted (NPS, health+LTC, employment)
Net pay	Gross − tax − social insurance

At year-end, add your annual deductions/credits (e.g., medical/education/donation/card usage). If the final computed tax is lower than the sum withheld, you’ll get a refund.

6) Common mistakes & quick checks

Missing dependents info: If you forget to report dependents, too much tax may be withheld each month → refund delayed.
Poor receipt management: Missing proof for medical, education, donations, and credit/debit card spending.
Job change / multiple employers: Failing to combine income from all payers can lead to additional tax due.
Late year-end documents: Not submitting February documents → refund delayed or pushed to the next settlement.

Tip: Review your NTS simplified data in January → submit to your company in February → send any corrections as additional documents.

7) Summary & next topic

You prepay tax via monthly withholding, then finalize it in the February year-end settlement.
Because of progressive rates, securing deductions & tax credits increases your refund potential.
The NTS simplified service + good receipt management are the keys to refunds.

Next (Part 13): Income Deductions—earned income deduction, basic/additional personal deductions, and how they reduce your tax base.

8) Disclaimer

This post is for general information and not tax advice. Details can change and outcomes depend on your facts. Consult a qualified professional.

Tags (hidden)

Wage Income Tax Year-End Settlement Withholding Tax Korean Income Tax Payroll Korea KRTaxPolicy Korean Taxation Series

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