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Taxes, Insurance, and Pension Deductions

            At this point, we will give you some information on the deductions you would expect to find on your pay when teaching English in South Korea. It will be broken down into basic information, and will also provide more details for those who are analytical. There are three main categories of dedcution as follows:

1. Income Tax
Approximate rate of 1.44% of income for employees or about 3.3% for contractors. This depends on how the school is set up. Most are set up with teachers as contracted employees.

2. Pension
Approximate rate of 4.5% (with possibility of being refunded twice that amount at completion of contract, depending on nationality) Please note that not all schools are part of the pension plan. It depends on the size of the school and the status of their employees (whether they are contracted or employed etc...)

3. Health Insurance
Approximate rate of 2.24%

Section One: Income Tax

Examples of Actual Q&A on NTS website
Click here to view or download full PDF of this Q & A
Click here to visit Korea National Tax Service Website

Click here to view or download the complete Taxation Guide (259 pages)


1. Question on taxes deducted from salary by employer
A. Question
I am currently teaching as an English teacher in Korea. I am earning ₩1,900,000
per month, and am being taxed at a rate of 7% per month....₩133,000 is
deducted from my pay each month. I have been informed that this amount is
incorrect, and I should only be getting 3.5% deducted per month. Can you tell
me if this information is correct?

If I suspect that my Employer has not registered me with the NTS, and are not
paying my taxes at all, is there any way I can find out. I do not wish to work for
a dishonest employer. I have tried requesting a copy of my tax certificate from
my Employers, but this has been denied.

Your advice and answers would be appreciated.

B. Answer
As far as individual income tax is concerned, when you have earned monthly
income of ₩1,900,000, the income tax amount to be withheld from your wage is
₩28,830 monthly according to the Simplified Tax Withholding Table (assuming the
number of your family is one, just yourself, which means you have no qualified
spouse or dependents who live together with you in Korea).

However, to take into account the contribution amount under the National Pension
Scheme, the amount to be deducted from your monthly income may increase.
Although, National Tax Service is not in charge of the National Pension Scheme,
We would like to outline the system briefly for your convenience.

Generally speaking, foreigners working at the workplace with more than 5 full-time
employees are included in the mandatory coverage of the Scheme, with some exceptions
(For further information, contact National Pension Corporation to the number 1355 without
dialing code). The contribution of workplace-based insured persons is equally shared
between the employer and the employee.

The contribution rate for the insured person is 9%, which is normally calculated by
multiplying the insured person's Standard Monthly Income shown on the National Pension
Contribution Table, which has a similar function to Simplified Tax Withholding Table
for income tax withheld, by contribution rate.

In the case of monthly income of 1.9 million won, the portion of contribution an
employee should assume, which is to be deducted from his/her wage, is ₩83,700.
To sum up, in your case, the amount deducted from your monthly salary will be at
least ₩112,530(Income Tax withheld + National Pension Contribution). Moreover, a
bit of residence tax and medical insurance fee may be added.

To add one thing, your employer should accept your request to present a copy of your
tax certificate(Receipt for Wage & Salary Income Tax Withholding). When you retire
from your current job before the end of this year, your employer would have responsibility
to have your tax status settled for you at the time of your retirement. So, you could
get tax refunded or pay more tax then from(to) your employer.

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Section two: Pension Plan

The basic breakdown is that the rate of contribution is 9%, with 50% being paid by the employee and 50% by the employer. This translates into 4.5% deducted from your pay. However, with certain countries, there are agreements in place to allow you to receive both your contribution, as well as the school's contribution. In effect, that means that you have a forced savings program of 4.5% of your monthly income, plus a bonus of an additional 4.5% contributed by your employer (this is above and beyond the regular 1 month bonus)

Click here to visit the National Pension Service Site

Click here to see if your country qualifies for the refund and learn how to receive it
Contribution rate for Workplace based Insured Persons and
Voluntarily & Continuously Workplace based Insured Persons
(Unit: %)
Year
1988¡­ 1992
1993¡­ 1997
1998
1999 and thereafter
Workplace
based
Insured
Persons
Total
3.0
6.0
9.0
9.0
Employee
1.5
2.0
3.0
4.5
Employer
1.5
2.0
3.0
4.5
Retirement
Payment Reserve
-
2.0
3.0
-
Voluntarily & Continuously
Workplace based Insured
Persons
3.0
6.0
9.0
9.0

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Section 3: Health Insurance

The health insurance rate is 4.48%, half of which is covered by the employee and half of which is covered by the employer. This translates into a 2.24% deduction from your salary.

Click here to visit the National Health Insurance Corporation


From the site:

Contributions

With the Integration Reform implemented, the health insurance program is being operated by a single insurer, the NHIC. Even though the organizational integration had been fully achieved in July 2000, the pooling of insurance finances between the funds of employees and those of the self-employed was adopted just on July 1, 2003, which had been managed separately until then. The formulas for calculating contributions are different between the two categories of the insured.

Contribution Rate

According to the National Health Insurance Act, the Health Insurance Finance Committee established at the NHIC has the competence to set the contribution rate for the employee insured within the range of less than 8% of monthly wages or salaries. However, under the Special Act for Financial Stabilization of National Health Insurance, the function of setting the contribution rate has been handed over to the Health Insurance Policy Review Committee established at the Ministry of Health and Welfare.

The payment of contributions is the responsibility of employers and all members of households. They are required to pay their monthly contribution by the 10th day of the following month. In the case of any failure of payment, the insurer (NHIC) could carry out coercive collection in accordance with the relevant provisions of the law.

The contribution of employee insured is based on the gross salary or wage of the insured. And the contribution rate of the employee insured is 4.48% for employees in private sector and for government and private school employees as well.

The contribution of the employee insured is borne by both employee and employer. For employees in private sector, the employer pays 50% of the contribution and the employee pays the other 50%. For government employees, the government, as their legal employer, pays 50% of the contribution, and the public servant pays the other 50%. For private school employees, however, the owner of the private school pays only 30%, the government subsidizes 20% of the contribution and the employee pays the remaining 50%.

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