For the salary income earner, yearly salary income tax reconciliation (which is done by the company early next year) is one of the biggest financial events. The company handles the reconciliation, but the employee needs to provide their own deductions (to maximize the refund).
Recently the government portal Hometax (www.hometax.go.kr) released 2019 tax reconciliation calculator, so called “연말정산미리보기”.
On the website, you can check the expected 2019 salary income tax refunds (or payables) so you can be prepared how your February 2020 paycheck will look like.
These will show you how to boost your salary income tax savings before the end of the year comes.
- Lower your taxes by using “Zero Pay” (payment system like credit card)
Zero pay is a new payment system Seoul city introduced.
With credit card payment, the shops (vendor) pays high fee to the card company (through VAN company) and the customer (buyer) gets small tax deduction.
Zero pay is a mobile QR code used payment gateway that charges no fee to the shop (vendor) and gives bigger tax benefit to the customer (buyer). Consumers are offered a tax deduction rate of 40 percent ― higher than 15 percent for credit cards and 30 percent for debit cards ― but available only when the person manages to spend 25 percent of his or her total income through Zero Pay.
- Create IRP account at the bank in addition to your retirement plan
If you have access to a retirement plan through your employer, consider increasing the amount or engage in a separate IRP account. The IRP account is opened by the employee (individual) not by the company. Even with a modest increase in contributions, you still have time to lower your taxes significantly. You can contribute upto 3m won per year (Up to 7m won including 4m won to pension saving account). The taxes you will save ranges from 500k won to 1m won depending on the tax bracket. The only problem with this account is that you need to maintain it for quite a long time.
- Make political donations
The amount you donate to the party you support can give you tax deduction upto 100% of the donation amount. This is eligible when the donation amount is less than 100,000won per year.
- Reduce the tax bite on your bonus.
A little tax planning can help you keep more of your tax bonus – or at least make better use of it. For the month, bonus was received on top of monthly salary, tax deduction is huge. However, if you wish for soon tax refund, receiving the bonus on December is a way. Because, if the bonus was received in January, it takes a whole year to get tax refund since the yearly tax reconciliation is done early next year.