[Real Estate Tech] Year-End Tax Saving Magic for Receiving the '13th Month Salary' in Year-End Tax Settlement

Change Cards According to 'Consumption Exceeding 25% of Income' Criteria
Public Transportation Deduction Rate in Second Half of Year Raised from 40% to 80%
Dependent Deduction Benefits Should Be Claimed by High-Income Spouse
If Medical Expenses Are High, Low-Income Spouse Should Claim
Medical, Education, and Donation Expenses Must Be Directly Verified and Registered

[Asia Economy Reporters Seungseop Song, Eunju Lee] As the year-end tax settlement schedule approaches, interest in ‘setech (tax + asset management)’ is growing among office workers. Through tax-saving strategies, one can secure a substantial sum of money often called the ‘13th month salary,’ but if done incorrectly, it could lead to having to pay money back.

According to the National Tax Service on the 30th, a preview service to check the estimated year-end tax settlement amount in advance has been in operation on ‘Hometax’ since the end of last month. Users need to enter credit card usage amounts from January to September, last year’s year-end tax settlement details, and expected usage amounts from October to December. Although the estimated tax amount may differ from the actual result, accuracy improves if the planned expenditures for October and November are replaced with actual usage amounts.

Year-end tax settlement is broadly divided into income deduction and tax credit. Income deduction reduces taxable income. As income increases, the taxable base also increases, so the more income deductions one receives, the more taxable income can be reduced. Tax credit directly eliminates or reduces the tax payable. Regardless of income, if conditions are the same, the same items are applied equally.

Generally, the most important item in income deduction is the ‘card deduction.’ To receive a card income deduction, one must spend more than 25% of their total income. For an office worker earning 50 million KRW annually, this means deductions apply only to amounts exceeding 12.5 million KRW. The deduction rate for the excess amount varies by category. Traditional markets and public transportation have a high rate of 40%, cash receipts, debit cards, and check cards have 30%, and credit cards have 15%. If the excess amount over 25% of total income is not yet large, it is advantageous to focus on using credit cards with higher benefits, and if spending is high, using check cards with higher deduction rates is better.

In particular, if you avoid using a car and use public transportation during the remaining month, deduction benefits increase. The income deduction rate for public transportation in the second half of this year (July to December) has increased from 40% to 80%. This is a temporary measure implemented by the government to mitigate the side effects of high oil prices. Public transportation income deductions include buses, subways, KTX, and SRT, but taxi fares are not included.

However, it is important to remember that income deductions do not increase benefits the more you spend. Office workers with a total salary of 70 million KRW or less can receive a maximum deduction benefit of 3 million KRW. Those earning over 70 million KRW can only receive deductions up to 2.5 million KRW. The trick of ‘increasing spending’ by pooling family members’ card usage to a high-income earner is unlikely to be very effective.

Tax-saving benefits related to dependents are also an important factor in income deductions. For dual-income couples, the tax benefits vary depending on who claims the dependent family members’ card usage. Typically, dependents refer to children under 20 years old or parents over 60 years old. Dependents can be registered if their annual comprehensive income does not exceed 1 million KRW. The deduction amount is up to 1.5 million KRW per dependent.

Generally, it is advantageous for the spouse with the higher annual salary to claim the dependent family income deduction. Since it reduces the taxable base, the high-income earner should claim the deduction to maximize tax reduction. However, this can vary depending on various factors. If the deduction limit is fully utilized without registering dependents, even if income is low, the other spouse should claim the deduction to increase benefits. To check detailed deduction levels, using the National Tax Service’s year-end tax settlement preview is also a good method.

An exception is the medical expense tax credit. If dependents have spent a lot on medical expenses, it is better to give the benefit to the person with the lower salary. The medical expense tax credit applies to amounts exceeding 3% of total salary. It reduces taxes by 15% of the amount exceeding 3%. For example, if the salary is 100 million KRW, dependents must spend at least 3 million KRW for the amount above that to be eligible for a 15% tax reduction. The higher the total salary, the harder it is to receive medical expense deductions, so the spouse with lower income benefits more.

There are also points to be cautious about. The income standard of 1 million KRW for parents registered as dependents refers to comprehensive income, not earned income. Income from public work under senior job programs, pensions, or capital gains from real estate sales are also included in income. If overlooked and registered as dependents, previously received income deduction benefits may have to be repaid later.

If you have extra funds, consider using pension savings products and retirement pension (IRP) products. Both products offer tax credits up to 7 million KRW annually. The tax credit amount varies depending on salary and age, with those aged 50 or older having a higher limit of 9 million KRW. If you sign up within this year, you can deposit a lump sum and still receive the tax credit. Therefore, it is advantageous for couples who have already maximized card deductions and have no additional benefits or office workers preparing for retirement as pension receipt approaches.

Monthly rent tenants can reduce taxes by up to 900,000 KRW. Eligible tenants live in national housing-sized homes (85㎡ or less) or homes with a standard market price of 300 million KRW or less. Those with total salaries of 70 million KRW or less can receive benefits. If total salary is 55 million KRW or less, 12% of monthly rent is deductible; if between 55 million and 70 million KRW, 10% is deductible. However, management fees are not deductible.

Among households without homes, if you have a housing subscription savings account, this is also deductible. If total salary is 70 million KRW or less, 40% (960,000 KRW) of up to 2.4 million KRW of annual contributions is deductible. Principal and interest payments on jeonse loans and interest payments on mortgage loans are also partially deductible depending on conditions.

Young workers in their 20s and 30s can also use a customized guidance service starting this year. The National Tax Service selected deduction items that young workers tend to overlook and collected internal and external data to finalize the guidance targets through big data analysis. Approximately 330,000 young workers will be informed about benefits such as housing savings income deduction, housing lease loan principal and interest repayment, long-term housing mortgage loan interest repayment income deduction, and monthly rent tax credit.

Among deduction items, medical expenses, education expenses, and donations are not checked by the National Tax Service, so individuals must carefully verify their usage items and claim deductions themselves.