In short: Korean employers are required by law to settle each employee’s annual wage income tax the following February (Article 137 of the Income Tax Act). Whether you’re taxed as a “resident” or “nonresident” depends on where your home and stay are, under Article 1-2. And if you are a foreign employee, you may be able to elect a flat 19% rate on your wage income instead of the ordinary progressive brackets, under Article 18-2 of the Restriction of Special Taxation Act — but that election gives up every deduction, exemption, and credit you would otherwise be entitled to.
The English translations of both laws quoted in this article lag the current Korean text: the Income Tax Act translation used here is dated August 8, 2023, while the Korean text now in force was promulgated December 23, 2025; the Restriction of Special Taxation Act translation is dated December 31, 2024, against the same December 23, 2025 Korean promulgation. Where the two might differ, the Korean original controls.
What is year-end settlement (연말정산)?
Article 137(1) of the Income Tax Act requires the “withholding agent” — in practice, your employer — to recalculate your income tax when it pays your wage income for February of the year following the relevant tax year, or, if you retire during the year, when it pays your wages for the month you retire. The recalculation is done in a set order:
- Take your wage income for the tax year (for a retiree, up to the date of retirement) and apply the comprehensive income deductions based on the return you filed under Article 140, to arrive at your comprehensive income tax base;
- Apply the basic tax rate (Article 55) to that tax base to get the calculated tax amount;
- Subtract from that amount the tax already withheld during the year under Article 134(1), plus any foreign tax credit, wage income tax credit, child tax credit, pension account tax credit, and special tax credits, to arrive at the income tax due.
If the amount already withheld and credited exceeds the calculated tax, Article 137(2) requires the excess to be refunded to you, as prescribed by presidential decree. If, instead, you owe additional tax and that additional amount exceeds ₩100,000, Article 137(4) allows the employer to withhold it in installments from your February through April wage payments of the following year, rather than all at once. If you never filed the return under Article 140, Article 137(3) says the employer applies only the basic deduction for yourself (not for dependents) and the standard tax credit when it runs this calculation.
Article 134 sets out how tax is withheld during the year: monthly wage payments are withheld under a “simplified tax withholding table” (Article 134(1)), and then the February year-end figure (or the retirement-month figure) is calculated under Article 137 as described above (Article 134(2)).
What the statute does not specify — the mechanics you’ll actually encounter as an employee, such as an online portal for submitting supporting documents, its opening date, or the exact list of receipts to gather — is set by the National Tax Service’s annual year-end settlement guidance rather than by the Act, so check that guidance for the current year.
Resident vs. nonresident
Article 1-2(1) of the Income Tax Act defines the two categories that determine how you’re taxed:
- A “resident” is an individual who has a domicile in Korea, or has had a place of residence in Korea for 183 days or more.
- A “nonresident” is any individual who is not a resident.
Article 1-2(2) leaves the detailed classification of what counts as a “domicile” or “place of residence,” and the resident/nonresident line-drawing, to be “prescribed by Presidential Decree” — that is, to a lower-level regulation not sourced in this article. Article 55, discussed below, applies its progressive brackets to the “global income of a resident.” How a nonresident’s wage income is taxed differently is outside the articles sourced here and is not covered in this piece.
The ordinary progressive tax rates (Article 55)
Article 55(1) sets the tax rates applied to a resident’s comprehensive income tax base for the year:
| Tax base | Tax |
|---|---|
| Up to ₩14,000,000 | 6% of the tax base |
| Over ₩14,000,000, up to ₩50,000,000 | ₩840,000 + 15% of the amount over ₩14,000,000 |
| Over ₩50,000,000, up to ₩88,000,000 | ₩6,240,000 + 24% of the amount over ₩50,000,000 |
| Over ₩88,000,000, up to ₩150,000,000 | ₩15,360,000 + 35% of the amount over ₩88,000,000 |
| Over ₩150,000,000, up to ₩300,000,000 | ₩37,060,000 + 38% of the amount over ₩150,000,000 |
| Over ₩300,000,000, up to ₩500,000,000 | ₩94,060,000 + 40% of the amount over ₩300,000,000 |
| Over ₩500,000,000, up to ₩1,000,000,000 | ₩174,060,000 + 42% of the amount over ₩500,000,000 |
| Over ₩1,000,000,000 | ₩384,060,000 + 45% of the amount over ₩1,000,000,000 |
(Article 55(1), current text.) This is the “basic tax rate” that Article 137(1)2 refers to when your employer computes your year-end calculated tax amount. It applies to your tax base — that is, your income after the comprehensive income deductions under Article 140 that Article 137(1)1 refers to — not to your gross wage income before any deduction.
The 19% flat-rate election for foreign employees (Article 18-2, Restriction of Special Taxation Act)
Article 18-2(2) of the Restriction of Special Taxation Act lets certain foreign employees choose a flat rate instead of Article 55’s brackets. The conditions and mechanics, as they appear in the current Korean text sourced for this article:
- Who: a foreign officer or employee (“foreign worker”), excluding daily workers.
- Timing condition: the foreign worker must have first started providing labor in Korea on or before December 31, 2026.
- Window: the election can apply to wage income received for tax years ending within 20 years from the date the foreign worker first provided labor in Korea.
- Exclusion: it does not apply to wage income from working for certain related-party companies designated by presidential decree (with an exception carved out for certain foreign-invested companies designated by presidential decree). A separate sentence in the same paragraph extends the same 19% treatment to foreign workers at certain “regional headquarters” designated by presidential decree, within the same 20-year window.
- The rate: where it applies, “notwithstanding Article 55(1) of the Income Tax Act,” the income tax on that wage income may be set at 19% of the wage income — not 19% of a tax base after deductions, but 19% applied directly to the wage income itself.
What you give up. Article 18-2(3) is explicit that if you elect this treatment, the non-taxable-income, deduction, exemption, and tax-credit provisions of both the Income Tax Act and the Restriction of Special Taxation Act do not apply to that wage income — with a narrow exception for certain non-taxable welfare-type payments designated by presidential decree under Article 12(3) of the Income Tax Act. In addition, that wage income is not combined into your comprehensive income tax base under Article 14(2) of the Income Tax Act; it is taxed on its own at the flat rate.
Withholding. Article 18-2(4) allows the withholding agent (your employer) to withhold 19% of your wage income each month, instead of following the simplified tax withholding table under Article 134(1).
You must apply. Article 18-2(5) requires a foreign worker who wants either the year-end 19% treatment under paragraph (2) or the monthly 19% withholding under paragraph (4) to file an application, in the manner prescribed by presidential decree. The article sourced here does not specify the application form, deadline, or where it is filed — that detail sits in a presidential decree not covered by this article.
There is a related, narrower relief for certain foreign engineers under Article 18 of the same Act (a 50% income tax reduction on wage income for up to 10 years from first providing labor in Korea before December 31, 2026, with a larger, shorter-window reduction for engineers in specified materials/parts/equipment fields). That provision has its own separate conditions and is not the same election as Article 18-2; it is not covered in detail in this article.
Which is better: the progressive brackets or the flat 19%?
There is no single answer, because the two paths tax different things: Article 55’s brackets apply to your tax base after deductions, while the flat 19% under Article 18-2 applies to your wage income directly and forfeits those deductions entirely.
To illustrate the mechanics only — not to give you a real answer — assume, purely hypothetically and with no deductions of any kind applied, that ₩60,000,000 of annual wage income is taxed directly as if it were already a tax base:
- Under Article 55(1): ₩60,000,000 falls in the “over ₩50,000,000, up to ₩88,000,000” band: ₩6,240,000 + 24% × (₩60,000,000 − ₩50,000,000) = ₩6,240,000 + ₩2,400,000 = ₩8,640,000.
- Under the Article 18-2 flat rate: 19% × ₩60,000,000 = ₩11,400,000.
In this no-deduction hypothetical, the progressive calculation produces a lower figure. But this comparison is artificial: in practice, the progressive route always starts from a tax base reduced by the comprehensive income deductions under Article 140 that Article 137(1)1 references, so the real Article 55 figure for most employees is smaller than shown above — while the flat-rate route allows no such reduction at all under Article 18-2(3). Which option is actually lower for you depends on how large your available deductions are relative to your income, a comparison this article does not attempt to resolve. This is not individualized tax advice; consult a licensed Korean tax professional for a calculation based on your own figures.
If you changed jobs or left Korea partway through the year
Article 137(1) itself covers the retiree scenario directly: if you retire during the tax year, the year-end settlement in Article 137 is run using your wage income “for the period up to the date of retirement,” and the employer performs the same three-step calculation (income deductions, then Article 55 rate, then credits) when it pays your wages for the month you retire — not in the following February.
Separately, Article 70(1) requires any resident with global income for the tax year (including one with no positive tax base, or a loss) to file a final return on the tax base of global income with the tax office having jurisdiction over the place of tax payment, between May 1 and May 31 of the year following the tax year. Article 70(4) lists categories of documents to be attached to that return (for example, documents evidencing entitlement to personal deductions, pension insurance premium deduction, and various credits; documents needed to calculate gross receipts and necessary expenses; and, for business income calculated from books of account, financial statements and related schedules). Article 70 is the mechanism for reconciling income and deductions beyond what your employer’s Article 137 year-end settlement captures; whether and when a given foreign employee needs to additionally file under Article 70 (for example, after leaving a job mid-year without a new employer, or with other income) depends on facts this article does not model, so if you left a job mid-year without a new employer, or had other income, check with the tax office or a tax professional whether an Article 70 return is required in your case.
Three common misconceptions
- “Year-end settlement is optional.” It is not framed as optional in Article 137 — the withholding agent “shall withhold” the recalculated tax when paying your February (or retirement-month) wages. The parts that involve you personally, such as gathering supporting documents, are set out in the National Tax Service’s annual guidance, not in the Act.
- “The 19% flat rate is automatically better because 19% is lower than the top bracket’s 45%.” As shown above, 19% is applied to your wage income with zero deductions (Article 18-2(3)), while the ordinary brackets apply only after your deductions reduce your tax base. Whether the flat rate helps you depends on how much you would otherwise deduct, not on comparing 19% to a bracket percentage in isolation.
- “Electing the flat rate only affects income tax and nothing else.” Article 18-2(3) speaks specifically to non-taxable-income, deduction, exemption, and tax-credit provisions “related to income tax” under the Income Tax Act and the Restriction of Special Taxation Act, and to exclusion from the Article 14(2) comprehensive income tax base. Whether the election has knock-on effects on anything outside income tax itself is not addressed in the articles cited here; the paragraph itself is limited to income tax provisions.
More questions
Is the 19% election a one-time, irrevocable choice for my entire 20-year window? Article 18-2 as sourced here says the election applies “for tax years ending within 20 years” from your first day of providing labor in Korea and requires an application under paragraph (5), but does not state here whether you can switch back to the ordinary progressive method in a later year, or whether the application must be renewed each year. That procedural detail is set by presidential decree under paragraph (5) and is not covered in this article.
Does the 183-day residence test in Article 1-2 count physical days in Korea, or something else? The text sourced here defines “resident” as someone with a domicile in Korea or a place of residence in Korea for 183 days or more, and expressly delegates the detailed classification of “domicile,” “place of residence,” and the resident/nonresident line to a presidential decree not covered in this article. If your situation is close to the line, the decree’s tests decide it, and this article does not cover them.
If my employer under-withholds and I owe more than ₩100,000 at year-end, do I have to pay it all in February? No — Article 137(4) allows the withholding agent to spread an additional tax amount that exceeds ₩100,000 across your February, March, and April wage payments of the following year, rather than collecting it all at once in February.