The South Korean government has implemented a series of revisions to the Individual Income Tax Law (IITL) and Special Tax Treatment Control Law (STTCL), effective from 2026. These changes are designed to ease the financial burden on families, support retirement and pension planning, promote investment, and improve compliance efficiency. Employers, payroll teams, and HR professionals should review these updates to understand their implications for payroll, benefits, and tax administration.
Key Highlights
The table below summarises the most impactful changes for payroll and HR teams.
| Category | Key Change | Effective Date | Limit / Rate |
| Childcare Allowance | KRW 200,000 per child for children under 6 | 1 Jan 2026 | Monthly |
| Parental Leave | Monthly limits from KRW 1,600,000 to KRW 2,500,000 depending on leave duration of up to 3 months. This is reduced to: KRW 2,000,000 per month and KRW 1,600,000 per month for leaves for leaves between 4th to 6th and 7th month onwards respectively. | 1 Jan 2026 | Per month by leave duration |
| Pension Income | Withholding rate reduced to 3% for lifetime annuity contracts | 1 Jan 2026 | N/A |
| Exit Tax | Expanded to include overseas shares without major shareholder requirement | 1 Jan 2027 | N/A |
Support for Families and Children
The amendments focus on childcare, parental leave, and education-related tax benefits:
- Childcare allowances: Tax-exempt limit increased to KRW 200,000 per child per month for children under six
- Parental leave benefits: Non-taxable allowances now cover teachers and administrative staff under various acts. Monthly limits range from KRW 1,600,000 to KRW 2,500,000 depending on leave duration
- Education tax credits: Expanded to cover arts and sports academy fees for children under nine or in Grade 2 or below. The income eligibility requirement for the special education tax credit for university students has been removed
- Tax credits for employees returning from parental leave: Extended to 31 December 2026 for eligible small and medium-sized enterprises (SMEs) and middle-market enterprises
Retirement and Pension Income
Key revisions support retirement security and rationalise pension taxation:
- Pension withholding tax: Reduced to 3% for lifetime annuity contracts, with deferred retirement income tax reductions extended for long-term recipients
- Foreign tax credit for pension accounts: Indirect investment income in pension accounts is now eligible for foreign tax credit upon withdrawal, with accumulation rules applied to ensure correct credit usage
- Retirement income tax settlement: Methods clarified to improve taxpayer convenience, including foreign-source retirement income
Capital Gains, Dividends, and Investment Incentives
Amendments aim to enhance investment opportunities and tax equity:
- Major shareholder thresholds for capital gains tax: Lowered to KRW 1 billion across KOSPI, KOSDAQ, and KONEX-listed stocks
- Exit tax on overseas relocation: Expanded to include overseas shares without the major shareholder requirement
- High-dividend companies: Introduced separate taxation of cash dividends with progressive rates of 14%, 20%, and 35% to encourage market participation
- Venture investments via Special Purpose Companies (SPCs): Tax exemptions and credits extended for direct and indirect investments, now applicable until 31 December 2028
Housing, Donations, and Tax Incentives
Revisions provide support for housing and regional development:
- Monthly rent tax credit: Expanded eligibility to allow separate claims for each spouse in non-homeowning households and larger housing areas for multi-child families
- Comprehensive housing subscription savings: Application periods extended and early termination rules clarified
- Hometown Love Donation Program: Tax credit rates increased for larger donations to local governments
- Credit card expense deductions: Deduction limits expanded based on the number of dependent children
- Timber harvest income: Non-taxable limit expanded from KRW 6 million to KRW 30 million per year for forestry workers
Compliance and Administration
The amendments streamline compliance and strengthen tax administration:
- Simplified payroll statements: Submission requirement for regular employees deferred to 2027
- Overseas stock transaction reporting: Mandatory submission of overseas stock transaction details for major shareholders and OTC trades
- Withholding tax applications for non-residents: Applications for treaty-reduced rates must be submitted to the tax office by the end of February following the year of payment
- Instalment payment system for additional year-end settlement: Taxpayers with business income may spread additional wage income tax over multiple months
South Korea – Global Insights
For detailed guidance on payroll, employment law, and compliance in South Korea, visit our South Korea Global Insights on the activpayroll website.
Next Steps
To understand how these changes may impact payroll, mobility, or HR policies in South Korea, complete our Contact Us form, and a member of our expert team will assist with your queries.