HOW THE KOREAN TAX SYSTEM WORKS

See the documents attached.

Essentially, your monthly withholding tax is based on your yearly income tax rate (most teachers, 15% per year). This works out to be 3-5% of your monthly paycheck/paycheque.

Your tax return will finalize your tax liability in Korea. If you've paid too much taxes during the year, you'll get a refund. If you've paid too little, you'll have to pay more. Why the discrepancy? Because the monthly withholding tax is simply based on basic deductions and credits every tax payer is entitled to. You may have additional deductions and credits (car insurance, medical expenses, etc.) which will reconcile your tax liability.

In theory, having to pay more at the tax year is actually better, as you can consider an interest-free loan from the government for the year. Conversely, getting a refund is actually a bad thing, since you've essentially given the government an interest-free loan for the year.


You might've heard that the tax rate is 3.3% per month--period. Teachers who get taxed 3.3% are considered independent contractors. This is so that employers do not have to pay pension and health insurance to their employees (common for part-time jobs). If you're  paying pension and receiving insurance yet your contract states you're being taxed at 3.3%, then your employer is incorrectly withholding taxes are you. The onus will be on you to pay any additional taxes if the tax authority finds out (this has happened and people have had to pay hundreds of thousands).

The following is the checklist that can reduce your tax liability:


1) Know your debit card, credit card and cash usage: When taxpayers spend more than 25 percent of their total income, they are qualified for deduction of up to 3 million won. The spending needs to be proved with cash receipts, credit card bills and debit card statement.

A person is allowed to get 25 percent of debit card and 20 percent of credit card spending deducted (thus, debit is better than credit for tax purposes, although credit cards are likely to save you more money in the end through discounts). Using credit cards and check cards abroad, however, won’t count for deductions.  Also, certain purchases such as lottery tickets, tobacco, etc. are not eligible for the deduction.

Car insurance payments are also tax deductible.

2) Get your medical bills. Taxpayers can get up to 7 million won in deductions for medical expenses

3) Find your dependents: When taxpayers’ dependents make 1 million won or less, 1.5 million won will be deducted per dependent. Deduction can be made for employees’ parents who live abroad separately. If they are aged 70 or older or disabled, taxpayers will get extra deductions.

4) Receipts for educational expenses: Up to 3 million won can be deducted for tuition and other educational costs for children in kindergarten and elementary, secondary and high schools, and 9 million won for those in university.

If foreign taxpayers have their children studying abroad, the children’s educational cost can also be excluded from being taxed. In addition, if parents who live separately earn less than 1 million won a year, their medical expenses and credit card spending count for deduction


Here is a good explanation for how the Korean tax system works:

http://expatsaver.wordpress.com/2013/07/24/clearing-up-taxes-in-korea/

Also check out:

http://nts.go.kr/eng/help/help_02.asp

http://www.nts.go.kr/eng/help/help_52.as

updated documents for 2013 tax year

please find attached:

1. Press Release For Foreigners' Year-end Settlement 2013 (in english/.hwp file)

2. Easy Guide for Foreigners' Year-end Tax Settlement 2013 (in english and korean/.pdf file)

also note that the flat tax rate for foreigners is now 17%.

For Canadians/Irish: Register your phone number with the NTS for tax purposes AS SOON AS POSSIBLE. When you pay with cash, as for hangeum yunsoojing (한금 연수징) - Cash receipt.

Also, register your T-money card and ONLY use that card. You can add others later.

For anyone else:

Do the above in your second year so you can have these tax savings when you pay in your third year.

The Korean tax system works backwards to Western nations.

Essentially, you have two payments:

a) Settlement (whch is the overage amount you pay at the end of they ear)
b) Monthly/One time payment: You can pay the tax load off over the next year by having it withdrawn every month. This will cause your pay to be somewhat unstable (+/- 120,000 each month)

Or

You can pay the roughly 1.2 million won you will owe when you send your settlement

If you use the above tax tricks to reduce your load, you will save a considerable amount.

Apparently, there is a law that states that foreigners can't deduct rent, utilities and most other things you would think are deductible in a Western country. (Not sure where, my coteacher told me)

You can opt for monthly withdrawals from your paycheque to offset your load too, but you have to make sure they actually register you with the NTS

None of this is applicable to first (1 or 2) year Americans who qualify for tax exemption, right?

For Canadians/Irish: Register your phone number with the NTS for tax purposes AS SOON AS POSSIBLE. When you pay with cash, as for hangeum yunsoojing (한금 연수징) - Cash receipt.

현금 영수증. Cash receipt.

USA. 3rd year (only a couple of months) working.

how do i do taxes?  please answer the following questions.

1) i was exempt from BOTH USA and KOREA taxes before. but now i have to pay
      A) Korean Taxes
      B) USA Taxes
      C) Both A and B
2) If/When paying USA Taxes, do i do a 'self estimate' calculation?

thanks.

USA. 3rd year (only a couple of months) working.

how do i do taxes?  please answer the following questions.

1) i was exempt from BOTH USA and KOREA taxes before. but now i have to pay
      A) Korean Taxes
      B) USA Taxes
      C) Both A and B
2) If/When paying USA Taxes, do i do a 'self estimate' calculation?

thanks.

3rd year? You will have to pay Korean tax. Not USA tax. You have to file with the IRS next coming tax date but you will be exempt since 1) you are not making more than 90,000USD 2) you have been out of the country for more than 300 something day.

Korean tax, usually they school (public) will do it for you. For Hogwon not sure if your place have an tax person who handle this for you.

USA. 3rd year (only a couple of months) working.

how do i do taxes?  please answer the following questions.

1) i was exempt from BOTH USA and KOREA taxes before. but now i have to pay
      A) Korean Taxes
      B) USA Taxes
      C) Both A and B
2) If/When paying USA Taxes, do i do a 'self estimate' calculation?

thanks.

3rd year? You will have to pay Korean tax. Not USA tax. You have to file with the IRS next coming tax date but you will be exempt since 1) you are not making more than 90,000USD 2) you have been out of the country for more than 300 something day.

Korean tax, usually they school (public) will do it for you. For Hogwon not sure if your place have an tax person who handle this for you.

you mean 300days total, or 300 days for the current tax year?
i will fall short of the "300days" for the current tax year.  my contract end soon. so i will  before the tax year ends.  (current tax term= 245+/-).

USA. 3rd year (only a couple of months) working.

how do i do taxes?  please answer the following questions.

1) i was exempt from BOTH USA and KOREA taxes before. but now i have to pay
      A) Korean Taxes
      B) USA Taxes
      C) Both A and B
2) If/When paying USA Taxes, do i do a 'self estimate' calculation?

thanks.

3rd year? You will have to pay Korean tax. Not USA tax. You have to file with the IRS next coming tax date but you will be exempt since 1) you are not making more than 90,000USD 2) you have been out of the country for more than 300 something day.

Korean tax, usually they school (public) will do it for you. For Hogwon not sure if your place have an tax person who handle this for you.

you mean 300days total, or 300 days for the current tax year?
i will fall short of the "300days" for the current tax year.  my contract end soon. so i will  before the tax year ends.  (current tax term= 245+/-).

Not sure, probably ask IRS for that answer. But it i remember it is more than 300 days. Around 350 I believe

here are two gems. people might like to read.

http://www.irs.gov/pub/irs-trty/korea.pdf

Article 20,  and Article 21 (end).

ARTICLE 20
Teachers
 (1) Where a resident of one of the Contracting States is invited by the Government of the other
Contracting State, a political subdivision, or a local authority thereof, or by a university or other
recognized educational institution in that other Contracting State to come to that other Contracting State
for a period not expected to exceed 2 years for the purpose of teaching or engaging in research, or
both, at a university or other recognized educational institution and such resident comes to that other
Contracting State primarily for such purpose, his income from personal services for teaching or research
at such university or educational institution shall be exempt from tax by that other Contracting State for a period not exceeding 2 years from the date of his arrival in that other Contracting State.
 (2) This Article shall not apply to income from research if such research is undertaken not in the
public interest but primarily for the private benefit of a specific person or persons.


Article 21 (end)
 (4) The benefits provided under Article 20 (Teachers) and paragraph (1) of this Article shall, when
taken together, extend only for such period of time, not to exceed 5 taxable years from the date of
arrival of the individual claiming such benefits, as may reasonably or customarily be required to
effectuate the purpose of the visit.

can someone clarify/Verify  this?

^.^   an Employee works for a Public School.

SO.....  once they start paying Korean Tax, they dont pay USA Tax....like a "double jeopardy" thing.
http://www.irs.gov/pub/irs-trty/korea.pdf
ARTICLE 22
Governmental Functions
 Wages, salaries, and similar remuneration including pensions, annuities, or similar benefits, paid from
public funds of one of the Contracting States to a citizen of that Contracting State for labor or personal
services performed as an employee of that Contracting State or an instrumentality thereof in the
discharge of governmental functions shall be exempt from tax by the other Contracting State.

So to clarify this, a teacher working in a private school in Korea, since he/she has NOT been "invited by the Government of the other contracting state", is not exempt from paying income tax in Korea? I was given the runaround on this and finally my recruiter changed her tune and said that I am not exempt despite telling me the opposite for months beforehand.

So to clarify this, a teacher working in a private school in Korea, since he/she has NOT been "invited by the Government of the other contracting state", is not exempt from paying income tax in Korea? I was given the runaround on this and finally my recruiter changed her tune and said that I am not exempt despite telling me the opposite for months beforehand.

Yes. Hagwon workers don't get a tax exemption.
Realistically, it's not actually that big a deal. Many of us coming from our home countries think of tax rates of 20% or higher, and think "Wow, TAX FREE, Im gonna save so much money". The truth is, the effective tax rate you'll be paying on an average hagwon salary is about 2-3% of your salary. Nice to have, but not a dealbreaker.

I was told the tax exemption would save me ~$1000 per year but if what you're saying is true then I guess that isn't the case, since 2-3% of my salary will be more like 500-800 bucks.

Anyway, now I'm also short the $85 I had to pay to get my U.S. residency certificate.... I wonder if I get in a public school next year I'll finally get the benefit of this. Anyway thanks for letting me know.

I'm still super confused. Can someone clarify? I'm a Canadian EPIK teacher. I came in with the Feb. intake and will probably leave in Feb. coming up. Will I owe about $700 in Korean taxes? If so, when will I be charged that?? I'm on a tight budget (bills to pay back in Canada) so I want to make sure I have enough money to cover it. :(

I was told the tax exemption would save me ~$1000 per year but if what you're saying is true then I guess that isn't the case, since 2-3% of my salary will be more like 500-800 bucks.

Anyway, now I'm also short the $85 I had to pay to get my U.S. residency certificate.... I wonder if I get in a public school next year I'll finally get the benefit of this. Anyway thanks for letting me know.

Yes, it'll be more like 500-800 than a $1000.

I'm still super confused. Can someone clarify? I'm a Canadian EPIK teacher. I came in with the Feb. intake and will probably leave in Feb. coming up. Will I owe about $700 in Korean taxes? If so, when will I be charged that?? I'm on a tight budget (bills to pay back in Canada) so I want to make sure I have enough money to cover it. :(

The tax adjustment is usually done in January. Any money owed will likely be deducted from your January or February salary. If tax has been deducted from salary monthly (as an EPIK teacher it should have been), then you're not going to be owing anywhere close to $700.

I'm still super confused. Can someone clarify? I'm a Canadian EPIK teacher. I came in with the Feb. intake and will probably leave in Feb. coming up. Will I owe about $700 in Korean taxes? If so, when will I be charged that?? I'm on a tight budget (bills to pay back in Canada) so I want to make sure I have enough money to cover it. :(

The tax adjustment is usually done in January. Any money owed will likely be deducted from your January or February salary. If tax has been deducted from salary monthly (as an EPIK teacher it should have been), then you're not going to be owing anywhere close to $700.

Thank you! The reason why I think it will be around $700 is because they've only been taking about $20 off for taxes a paycheck. I hope you're right, that's a big relief!

What is the monthly tax rate for hagwon and public school teachers?  Are they different?  Independent Contractors pay 3.3%.  Should teachers be lower than that?

Public school teachers do not pay income tax their first two years.  Hagwons pay the amount here plus 10% of what the number is.

http://www.nts.go.kr/eng/help/help_52.asp

Public school teachers do not pay income tax their first two years.  Hagwons pay the amount here plus 10% of what the number is.

http://www.nts.go.kr/eng/help/help_52.asp

Not really. Public school teacher also have to pay tax either it'll be the first two years or not. To be exempt from paying tax, NET must summit a "Certificate of Residency" from their country in order to be exempt. Also depends if your country have a tax treaty with S.K. Some countries do, some don't