[Q&A] Who Receives the Earned Income and Child Tax Credit Notice... Can You Apply Even If You Have Closed Your Business?

[Sejong=Asia Economy Reporter Kim Hyunjung] The National Tax Service announced on the 3rd that it sent guidance letters to 3.98 million households with earned income or business income last year, encouraging them to apply for the Earned Income Tax Credit and Child Tax Credit. Even if you are not a target for guidance, you can apply if you meet the eligibility requirements by applying through Hometax or calling the tax office. However, households that chose the semi-annual system and applied last September or this March are excluded from this application.

The application period is from the 1st to the 31st of this month, and the review will be expedited to pay by the end of August. The earned income and child tax credits for last year's income are available to households that meet both income and property requirements according to household composition. For dual-income households, up to 3 million KRW is paid, and the child tax credit is up to 700,000 KRW per child.

The National Tax Service summarized the information about the semi-annual earned income tax credit application in a Q&A format as follows.

▲If you applied for the semi-annual earned income tax credit in September 2020 or March this year, do you still need to apply this May?

=Households that applied last September or this March have already applied for the earned income and child tax credits, so they are not eligible to apply this May. The semi-annual earned income tax credit will be settled and refunded in September this year.

▲If both the father and the applicant in the family meet the eligibility requirements, why was the guidance letter sent only to the father?

=The earned income tax credit is paid to only one person per household. If more than one person meets the eligibility requirements, the order is ▲ the person mutually agreed upon among the residents ▲ the person with the higher total salary ▲ the person with the higher earned income tax credit for the relevant income tax period.

▲Can you apply if you are currently not operating a business due to closure?

=The eligibility requirements for this earned income and child tax credit are based on 2020, so if you meet all the requirements, you can apply. For example, if you operated a retail business but closed in March 2021, you can still apply if you reported your 2020 sales (such as comprehensive income tax filing) and meet the income and property requirements.

▲Is it mandatory to file a comprehensive income tax return when applying for the earned income and child tax credits?

=Applicants and spouses who are obligated to file a comprehensive income tax return cannot receive the credit if they do not file within the filing period. If they file after the deadline but before the credit decision date, payment is possible. However, ▲ daily workers, those with only income subject to withholding tax such as earned income ▲ business operators subject to simplified expense rates with comprehensive income below the basic deduction amount (1.5 million KRW) ▲ regular employees who received earned income, public pension, retirement, religious, or withholding subject business income from two or more sources with comprehensive income below the basic deduction amount (1.5 million KRW) are considered to have filed the comprehensive income tax return.

▲What penalties are imposed if you apply fraudulently?

=If you intentionally or through gross negligence provide false information regarding eligibility, the earned income tax credit will not be paid (refunded) for two years starting from the year the fact is confirmed. If you apply fraudulently through fraud or other dishonest acts, payment will be withheld for five years.

▲If the applicant has earned income of 15 million KRW, two dependent children, and a spouse with business income (insurance planner) of 5 million KRW, what is the expected amount of earned income tax credit?

=The total salary amount is 19.5 million KRW (15 million KRW + 5 million KRW * personal service adjustment rate 90%), so the expected earned income tax credit is 2.6 million KRW, and the child tax credit is 700,000 KRW per child, totaling 1.4 million KRW. This applies if property is below 140 million KRW; if above, 50% is reduced, and if 200 million KRW or more, payment is excluded.