[Gi Ha-yeong's Lifestyle Card] 13th Month Salary?... How to Use Cards to Maximize Year-End Tax Settlement Benefits

Income Deduction Rate Raised to 80% from April to August This Year
Check If Card Spending Exceeds 25% of Total Salary First

[Asia Economy Reporter Ki Ha-young]Is there anyone these days without at least one credit card? In modern society, anyone can have a card if they want. Credit cards have brought unparalleled convenience to daily life. Now, wherever you go, you can easily see people paying with credit cards or smartphones. As demand has increased, cards with various benefits are being released almost daily. Accordingly, Asia Economy delivers diverse stories related to cards, which are inseparable from our consumer life, through the weekly 'Cards in Daily Life' corner, including introductions to new cards, industry behind-the-scenes, and guides for card beginners.

The year-end tax settlement season, often called the "13th month salary," is approaching. This year, due to the impact of the novel coronavirus disease (COVID-19), the income deduction rate for card usage has been temporarily increased. By reviewing this year’s consumption and planning a strategy for the remaining period, you can maximize your benefits.

The first thing to check is your spending amount this year. The National Tax Service has launched a year-end tax settlement preview service on Hometax starting this month, where you can check your card usage from January to September.

To receive a card income deduction, you must exceed the minimum usage amount. The deduction applies to amounts exceeding 25% of your annual total salary. For example, if your annual salary is 40 million KRW, you must spend at least 10 million KRW (25% of 40 million KRW) on cards to qualify for the income deduction. If your card usage from January to September is far below 25%, or if you think you won’t exceed 25% even after heavy card use until December, there is no need to worry about using cards for tax savings. The same applies if you have already exceeded the maximum deduction limit (3.3 million KRW for total salary under 70 million KRW). Instead of increasing consumption, it is better to use credit cards with additional service benefits rather than debit cards.

Conversely, if you are close to 25%, using cards with higher income deduction rates such as check or debit cards can yield more deductions. This year, to revive consumption sentiment weakened by COVID-19, the card income deduction rate was increased. From April to July, the deduction rate was uniformly expanded to 80%, regardless of payment method such as credit cards or cash receipts. In March, the credit card deduction rate increased from 15% to 30%, and other payment methods increased from 30% to 60%. For January to February and August to December this year, the credit card deduction rate remains at the usual 15%.

The deduction limit was also temporarily raised by 300,000 KRW this year. Until last year, those with a total salary of 70 million KRW or less could receive up to 3 million KRW in card income deductions, but this year it has been expanded to 3.3 million KRW. For total salaries exceeding 70 million KRW up to 120 million KRW, the limit increased from 2.5 million KRW to 2.8 million KRW, and for those exceeding 120 million KRW, it increased from 2 million KRW to 2.3 million KRW.

Additionally, spending on traditional markets, public transportation, books, performances, museums, and art galleries can be deducted up to 1 million KRW each regardless of the deduction limit, so don’t forget to take advantage of these. Above all, it is important to understand your consumption patterns and establish a strategy accordingly.