Starting in 2023, individuals can receive a tax deduction for contributions to their pension accounts up to 900,000 KRW, an increase from the previous limit of 700,000 KRW in 2022.
For Individuals Under 50 Years Old:
- Total annual income up to 55 million KRW (4 million KRW comprehensive income): A tax deduction of 15% (up to a maximum of 700,000 KRW per year) is available for contributions to pension accounts. This means that if an individual contributes 700,000 KRW to their pension account, they can receive a tax refund of 105,000 KRW upon year-end tax settlement.
- Total annual income exceeding 55 million KRW: A tax deduction of 12% (up to a maximum of 700,000 KRW per year) is provided for contributions to pension accounts. If an individual contributes 700,000 KRW, they can receive a tax refund of 84,000 KRW.
For Individuals Over 50 Years Old:
- Total annual income up to 120 million KRW (100 million KRW comprehensive income): A tax deduction of up to 900,000 KRW per year is available for contributions to pension accounts.
- Total annual income exceeding 120 million KRW: A tax deduction of up to 700,000 KRW per year is available. In this case, a 15% deduction applies if the income is up to 55 million KRW (4 million KRW comprehensive income), and a 12% deduction applies if it exceeds this amount.
The changes starting from 2023 are as follows:
1. Regardless of age and income, individuals can receive a tax deduction for contributions to their pension accounts up to a maximum of 900,000 KRW.
2. The 15% deduction for total annual income up to 55 million KRW (4 million KRW comprehensive income) and the 12% deduction for income exceeding this amount remain in effect.
The changes aim to allow individuals to make more favorable decisions regarding the taxes they need to pay when receiving pension income.
Up until this year, individuals receiving pension income of up to 12 million KRW annually were subject to a pension income tax rate of 3.3% to 5.5% (including local income tax) based on their age. If the annual pension income exceeded 12 million KRW, it was combined with other income, and the tax rate ranged from 6.6% to 49.5% as comprehensive income tax.
Starting next year, individuals receiving pension income exceeding 12 million KRW annually can choose between paying 6.6% to 49.5% as comprehensive income tax or a separate tax rate of 16.5%, known as "분리과세" (separated taxation).
"분리과세" (separated taxation) allows individuals to calculate taxes on specific income separately from their overall income. Opting for 16.5% separated taxation means that taxes are calculated independently for pension income, regardless of other income sources. The choice between combined and separated taxation depends on individual circumstances.