120,000-150,000 Won Tax Benefit for Two-Child Households Through Credit Card Income Deduction [2025 Tax Reform]

Up to 500,000 won per child for salaries of 70 million won or less
For higher salaries, up to 250,000 won per child, maximum increase of 500,000 won
Arts and physical education academy fees for grades 1 and 2 now eligible for tax credits
Up to 50% tax reduction for long-term retirement pension recipients

Starting next year, the basic income deduction limit for credit card spending by households with multiple children will be increased by up to 1 million won. In addition, arts and physical education academy fees for children in grades 1 and 2 of elementary school will be newly included in the list of education expenses eligible for tax credits. Seniors who receive their retirement pay as a long-term pension for more than 20 years will be able to reduce deferred taxes by 50%. Those who make a Hometown Love Donation between 100,000 and 200,000 won will be eligible for a tax credit of up to 40%.

The Ministry of Economy and Finance announced these measures in the '2025 Tax Reform Plan' at the Tax System Development Review Committee held on July 31 at the Bankers Club in Jung-gu, Seoul, presided over by First Vice Minister Lee Hyungil. Vice Minister Lee stated, "The tax reform plan for next year will be submitted to the National Assembly after going through the Cabinet meeting," and added, "It will be finalized through discussions in the National Assembly."

For a salary of 60 million won and two children, tax burden will decrease by 150,000 won

The government has decided to expand various tax benefits to support the livelihood of low- and middle-income households. First, to reduce the living expenses of households with multiple children, the income deduction limit for credit card spending and similar expenses will be increased according to the number of children. For those with a total salary of 70 million won or less, the basic income deduction limit will be raised by 500,000 won per child, up to a maximum of 1 million won. For those with a salary exceeding 70 million won, the limit will be increased by up to 500,000 won (250,000 won per child).

Previously, regardless of the number of children, those with a total salary of 70 million won or less could receive an income deduction of 3 million won, while those with a salary exceeding 70 million won could receive a deduction of 2.5 million won. Going forward, for salaries of 70 million won or less, the deduction will be 3.5 million won for one child and 4 million won for two or more children. For those with a salary exceeding 70 million won, the deduction will be 2.75 million won for one child and 3 million won for two or more children.

For example, if a person supports two children and uses credit cards up to the increased limit, a person with a total salary of 60 million won will see their tax burden reduced by 150,000 won. For someone with a total salary of 100 million won, the tax burden will decrease by 120,000 won. The Ministry of Economy and Finance explained that the differentiated deduction limits are designed to provide greater benefits to low- and middle-income earners.

Regarding childcare for children aged six or younger, the non-taxable limit for childcare allowances received from employers will be expanded to 200,000 won per child per month. For example, if a worker is raising two children, they will be able to receive a total of 400,000 won per month as a childcare allowance from their company, 200,000 won for each child. In this case, the non-taxable annual limit, which was previously capped at 2.4 million won, will be increased to 4.8 million won.

Arts and physical education academy fees for children in grades 1 and 2 of elementary school (under age 9) will be included in the education expense tax credit (15% credit, up to 3 million won per year). Previously, the tax credit applied only to academy fees for pre-school children and to entrance and tuition fees for elementary school students. Going forward, if monthly arts and physical education academy fees are 300,000 won, parents will be able to receive a 15% tax credit on the annual education expense limit of 3 million won, reducing their tax burden by 450,000 won.

Extension of housing subscription savings tax benefits... 'Basic pension' requirement for those aged 65 and over

The government will also expand the eligibility and scope of tax credits for monthly rent. In this process, married couples living separately for work purposes will each be allowed to claim the monthly rent tax credit. The combined annual limit for couples is 10 million won. Previously, only one head of a non-homeowning household with a total salary of 80 million won or less could claim the credit, up to 10 million won per year.

The deadline for the housing subscription savings tax benefit, which provides a 40% income deduction (up to 3 million won) for non-homeowning heads of households and their spouses with a total salary of 70 million won or less, will be extended until 2028. The deadline for the special tax exemption on interest income for those aged 65 and over, people with disabilities, and others who open comprehensive non-taxable savings products will also be extended to 2028. However, eligibility for those aged 65 and over will be limited to recipients of the basic pension.

To promote pension income, the withholding tax rate will be lowered. The government will reduce the tax rate on private pensions received for life in the form of an annuity to 3% from the current 4% for pension income of 15 million won or less. In addition, the reduction rate for those who deposit their retirement pay into a pension account and receive it over the long term will be increased. For those receiving pensions for more than 20 years, a new reduction bracket will be introduced so that the reduction rate can reach 50% compared to lump-sum withdrawals.

The deadline for tax exemption on interest and dividend income from deposits for members of agricultural, fisheries, and forestry cooperatives, as well as low-income associate members, will be extended by three years to 2028. However, for high-income associate members and members (those with a total salary exceeding 50 million won) who are not farmers or fishers, the tax exemption will be replaced with a low-rate separate taxation. In this case, a tax rate of 5% will apply next year, and 9% from 2027.

Tax reduction period for companies relocating to non-metropolitan areas extended to up to 15 years

To support regional growth, the government will ▲expand tax credits for Hometown Love Donations ▲increase tax support for companies located in industrial crisis response areas ▲and improve the tax support system for companies relocating to non-metropolitan areas.

Previously, Hometown Love Donations of up to 100,000 won were eligible for a 100% tax credit, and donations up to 20 million won were eligible for a 15% tax credit. Going forward, donations between 100,000 and 200,000 won will be separately categorized and the tax credit rate will be increased from 15% to 40%.

For example, if you donate 200,000 won, you will receive a full tax credit (including local income tax) for the first 100,000 won, and a 44% credit (40% national tax + 4% local tax) for the amount exceeding 100,000 won, resulting in a total tax credit of 144,000 won. Including the return gift, which is worth 30% of the donation up to a limit of 60,000 won, the total benefit amounts to 204,000 won, according to the Ministry of Economy and Finance.

The government will also expand the special provision for deferring capital gains tax when companies in industrial crisis response areas sell assets to repay financial debt. The deadline for this measure is until next year. Currently, capital gains are recognized over four years of deferment and three years of installment, but this will be changed to five years of deferment and five years of installment. This measure is intended to promote corporate restructuring, prevent the spread of crises, and help companies regain competitiveness.

The 'tax support system for companies relocating to non-metropolitan areas,' which provides income tax and corporate tax reductions for companies that move their headquarters and factories from the Seoul metropolitan area to other regions, will expand the scope of eligible companies and extend the reduction period from 7-12 years to 8-15 years, depending on the relocation area. A new limit will also be introduced linking the tax reduction to the company's local investment and employment. However, only businesses relocating their factories after January next year will be eligible.