Tax returns for foreign workers in Korea essential guide 2026

Navigating the tax system in a foreign country can be one of the most daunting aspects of expatriate life. In South Korea, however, the annual tax settlement season—known locally as Yeonmal Jeongsan—is often anticipated with a mix of anxiety and excitement. Frequently referred to as the "13th Month Salary," this process can result in a significant lump-sum refund if managed correctly, or a surprising bill if ignored.

For the estimated 2.2 million foreigners currently residing in South Korea, understanding the nuances of the National Tax Service (NTS) is crucial. Unlike many Western countries where individuals file their own taxes directly with the government, in Korea, your employer typically handles the bulk of the filing process in February, based on data you provide.

Whether you are an English teacher, an engineer at a conglomerate, or a corporate executive, maximizing your refund requires strategic planning throughout the year.

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Understanding the "13th Month Salary"

The concept of the year-end tax settlement is relatively straightforward. Throughout the fiscal year (January 1 to December 31), your employer withholds income tax from your monthly paycheck based on a standardized table. However, this withholding does not account for your specific life circumstances, such as medical expenses, housing costs, or charitable donations.

The settlement process in January and February reconciles what you should have paid (based on actual deductions) versus what you did pay.

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If you paid more taxes than necessary, you receive a refund. If you paid too little, you must pay the difference. According to NTS data from 2025, approximately 67% of foreign workers received a refund, with the average payout being roughly ₩540,000 (South Korean Won). However, those who failed to submit proper documentation often faced an average additional payment of ₩200,000.

The Foreigner Special: 19% Flat Tax Rate

One of the most significant advantages for foreign workers in Korea is the special taxation rule. Foreign employees can choose to have their income taxed at a flat rate of 19% applied to their total gross income, rather than the progressive tax rates that apply to Korean nationals.

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This is a critical distinction because the standard progressive tax rates in Korea range from 6% to 45% depending on income brackets.

When Should You Choose the Flat Rate?

The 19% flat rate is generally beneficial for high-income earners. The break-even point usually hovers around an annual gross income of ₩140,000,000 (approximately $105,000 USD).

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If you earn less than this amount, the standard progressive rate—combined with the various deductions available—will usually result in a lower effective tax rate than 19%.

Determining Your Residency Status

Your tax liability in Korea depends heavily on whether you are classified as a "Resident" or "Non-Resident" for tax purposes. This is distinct from your visa status.

• Resident: An individual who has a domicile in Korea or has resided in Korea for 183 days or more during a tax period. Residents are taxed on worldwide income (if they have lived in Korea for more than 5 years in the last 10 years) or strictly Korean-sourced income (if 5 years or less).
• Non-Resident: An individual who does not meet the residency criteria. Non-residents are taxed only on income derived from sources within Korea and are generally not eligible for most income deductions, except for the basic personal deduction.

Most foreign workers on E-2 (Teaching), E-7 (Special Occupation), or F-series visas who stay for a year or more are considered Residents.

Essential Deductions to Maximize Your Refund

If you opt for the progressive tax rate (which most teachers and office workers should), your goal is to lower your taxable income through deductions. The National Tax Service allows for a standard deduction of ₩1,500,000 for the taxpayer themselves.

Here are the major categories where you can accrue deductions. The data below reflects the 2025 tax year standards.

1. Credit and Debit Card Usage

Korea encourages electronic payments to ensure transparency. You can deduct a percentage of your annual spending if it exceeds 25% of your total gross income.

• Credit Cards: 15% deduction on the excess amount.
• Debit/Check Cards & Cash Receipts: 30% deduction on the excess amount.
• Traditional Markets & Public Transit: 40% deduction.
• Limit: The total deduction limit for credit/debit card usage is ₩3,000,000 for those earning under ₩70 million.

2. Housing and Rent (Wolse)

For many expats, rent is the biggest monthly expense. You can receive a tax credit of 15% to 17% of your annual rent payments, up to a maximum limit of ₩7,500,000 in recognized rent payments.

Eligibility Requirements:

• Total annual income of ₩70 million or less.
• You must be a householder without home ownership.
• The address on your Alien Registration Card (ARC) must match the rental contract address.
• The home must be smaller than 85 square meters.

If you pay ₩600,000 monthly in rent, that totals ₩7.2 million a year. A 15% tax credit on this equals ₩1,080,000 directly subtracted from your tax bill—a massive saving.

3. Medical Expenses

You can deduct medical expenses that exceed 3% of your total annual income. This includes doctor visits, unexpected surgeries, and even prescriptive corrective lenses (up to ₩500,000 per person).

• Deduction Rate: 15% of the eligible amount.
• Cap: ₩7,000,000 per year (no cap for seniors or persons with disabilities).

4. Donations

Donations to registered charities, religious organizations, and labor unions are deductible.

• Political donations: Up to ₩100,000 is 100% credited (you get the full amount back). Amounts exceeding ₩100,000 are deductible at 15%.

How to File: The Hometax Simplified Service

The Korean government has digitized the tax process remarkably well through the Hometax website (hometax.go.kr). The "Year-end Tax Settlement Simplified Service" usually opens on January 15th each year.

This system automatically aggregates your spending data from banks, hospitals, and schools because your ARC (Alien Registration Card) is linked to these services.

Manual Submissions

Not everything appears automatically on Hometax. You often need to manually submit:

1. Housing Contract & Rent Transfer Proof: Bank statements showing rent payments.
2. Donation Receipts: If the charity didn't upload to the NTS system.
3. Eyeglass Receipts: Ask your optician for a cash receipt specifically for tax purposes.

The Cost of Professional Help

While most employees file through their company, freelancers, business owners, or those with complicated financial situations (multiple income sources) might need a tax accountant.

If you miss the February deadline, you must file individually in May (Comprehensive Income Tax Period). While you can do this yourself on Hometax, the interface is complex for non-Korean speakers.

Specific Scenarios: Teachers vs. Corporate

The English Teacher (E-2 Visa)

Most E-2 teachers are exempt from paying income tax for their first two years if they are from a country with a specific tax treaty (e.g., USA, UK, South Africa, Australia).

• Requirement: You must submit a "Certificate of Residence" from your home country's tax authority to your school immediately upon arrival.
• Reality Check: If you didn't do this, you have been paying tax. You can claim it back, but it often requires a tedious amendment process.
• Note: Canadian and Irish teachers do not have this tax exemption clause in their treaties with Korea.

The Corporate Expat (E-7 / F-series)

Corporate workers usually have higher salaries, making the choice between the flat rate (19%) and progressive rate essential.

• Stock Options: If you exercise stock options from a foreign parent company, this is taxable income in Korea. Failing to report this is a common audit trigger for foreign executives.

Location: Where to go for Help?

If you need to visit a tax office in person, you must go to the District Tax Office (Semu-seo) that has jurisdiction over your residence.

Common Pitfalls and Penalties

Filing taxes in a foreign language creates room for error. Here are the most common mistakes foreigners make:

1. Over-claiming dependents: You can only claim dependents (spouse/children) if they earn less than ₩1,000,000 per year. If your spouse works part-time and earns ₩5 million, you cannot claim the basic deduction for them.
2. Double Dipping: If both spouses work, you cannot both claim the same child for the basic deduction. You must decide who claims the child (usually the higher earner benefits more).
3. Missing the Housing Deduction: Many landlords dislike giving cash receipts for rent because they want to under-report their own income. However, you are legally entitled to this deduction. If you report it, your landlord may face back-taxes, which can cause interpersonal conflict, but the law is on your side.

What if I Leave Korea Mid-Year?

If you are leaving Korea permanently before the end of the tax year (e.g., in August), you must perform a mid-year settlement with your employer before your final paycheck is issued.

Once you leave the country and surrender your ARC, accessing Hometax becomes nearly impossible because digital authentication requires active residency status or a Korean mobile number.

• Process: Request a mid-year settlement (Joong-do Jeongsan) from your payroll department.
• Refund: If you overpaid, the refund should be included in your final severance or salary payment.

Frequently Asked Questions

Final Thoughts

The Korean tax system is designed to be efficient, but it relies heavily on the taxpayer knowing which buttons to click and which documents to save. For the average foreign worker, the difference between a lazy filing and a diligent one can be over ₩1,000,000 ($750 USD).

Take the time in January to log into Hometax, check your card spending, and ensure your rent is counted. Your future self—enjoying that "13th Month Salary" in March—will thank you.