Withholding Tax on Salaries for Workers with Children Under 7 Increased by Up to 90,000 KRW... Ministry of Economy and Finance Says "Actual Tax Remains the Same"

Effort to Change Child Tax Credit Criteria in Simplified Income Tax Table for Earned Income to 'Number of Children Aged 7 to 20'

[Asia Economy Reporter Joo Sang-don] The monthly withholding tax amount on wages for workers with children aged 0 to 6 will increase by 10,000 to 90,000 KRW. However, this increase in withholding tax does not mean paying more taxes overall. Taxes are withheld from wages monthly and then refunded or additionally paid through year-end tax settlement.

According to the Ministry of Economy and Finance on the 18th, the child tax credit criteria in the simplified income tax table for earned income will be changed from the existing 'number of children aged 20 or younger' to 'number of children aged 7 to 20.'

This reflects the change in the tax credit system, which since 2019 has provided tax credits only for children aged 7 or older (including children under 7 attending school), in the simplified income tax table for workers' monthly wages.

The government previously excluded children under 7 from the child tax credit starting in 2019, when the child allowance payment target was expanded to all children under 7. Instead of receiving a child tax credit of 150,000 to 300,000 KRW per child, families receive a monthly child allowance of 100,000 KRW. Although this tax law revision has been in effect since last year, it had not been reflected in the simplified income tax table until now.

Accordingly, for a dual-income worker with one child under 7 and a monthly wage (excluding non-taxable and scholarship income) of 3 million KRW, the monthly wage withholding tax will increase from 32,490 KRW to 67,350 KRW, an increase of 34,860 KRW.

An official from the Ministry of Economy and Finance explained, "The final tax burden related to the child tax credit remains the same as last year," adding, "Since more is collected through withholding, the amount to be settled at year-end tax adjustment decreases, making it more likely to receive a refund rather than pay more at year-end." In other words, taxes are paid in advance but not increased overall.

The new enforcement decree will be implemented after the Cabinet meeting in February. From the worker's perspective, the new withholding method will be applied starting with the February salary.