How to Receive the '13th Month Salary': Year-End Tax Settlement Guide [AK Radio]

At the end of the year, office workers pay close attention to year-end tax settlement. Commonly called the "13th month salary," the year-end tax settlement allows you to get a refund of part of the taxes you paid if you carefully claim income deductions and tax credits. However, if the settlement is done incorrectly, you may end up paying more taxes, so preparation is necessary.

The year-end tax settlement is a process of comparing the taxes withheld monthly from your salary with the actual taxes you owe and settling the difference. For example, if you paid 1.5 million won in taxes over the year but actually owe 1 million won, you will receive a refund of the 500,000 won difference. Conversely, if you paid 1 million won but actually owe 1.5 million won, you must pay an additional 500,000 won.

The reason this settlement is necessary is that tax imposition methods can vary depending on each office worker’s economic situation. Since tax deductions must be applied differently based on various factors such as the number of dependents, marital status, and whether you have children, it is not possible to calculate these accurately every month. Therefore, a comprehensive review of income and expenses over the year is conducted at year-end.

The key elements of year-end tax settlement are income deductions and tax credits. Income deductions reduce the taxable base, thereby lowering the tax burden. Tax credits deduct a certain amount directly from the calculated tax. The process involves applying income deductions to the total salary to reduce the taxable base, calculating the tax amount by applying the tax rate, and then applying tax credits to determine the final tax amount.

Income deduction items include dependent family deductions, housing subscription savings deductions, housing loan deductions, and card deductions. If you have dependents, you can receive a personal deduction of 1.5 million won per family member, with additional deductions possible under certain conditions. The housing subscription savings deduction recognizes 40% of the savings amount as an income deduction within an annual payment limit of 3 million won. However, this applies only to homeowners without a house whose total salary is 70 million won or less.

The housing loan deduction covers expenses used for purchasing a house, jeonse (long-term deposit lease), or monthly rent, and applies if you are a non-homeowner with a residential area of 85 square meters or less. Additionally, there are income deductions for credit card and debit card usage. To qualify for the deduction, card usage must exceed 25% of total salary, with credit cards deductible up to 15% of usage and debit cards up to 30%.

For card income deductions, it is advantageous to use credit cards up to 25% of your annual total salary and then use debit cards for amounts exceeding that, taking advantage of the difference in deduction rates. For dual-income couples, it is easier to meet deduction criteria if the spouse with the lower income makes the payments, which helps reduce taxes. Note that card income deductions are capped at a maximum of 6 million won and are not unlimited.

Tax credit items include contributions to pension savings and IRP (Individual Retirement Pension) accounts. By saving in these two accounts, you can receive tax credits up to 9 million won, with tax credit rates ranging from 12% to 15% depending on income. Since it is difficult to suddenly increase card usage or income right before year-end tax settlement, lump-sum payments into pension savings or IRP accounts are considered effective methods for tax savings.

The year-end tax settlement is an important process that offers office workers opportunities for tax savings and refunds. The key is to effectively use income deductions to lower the taxable base and maximize tax credits to reduce the tax burden. It is important to prepare in advance by referring to the year-end tax settlement guides and materials provided by the National Tax Service.