Korea’s Tax Breaks: Will Your Extra Paycheck Survive?

Korea’s ruling party may extend a popular tax deduction that has long served as an “extra paycheck” for over 12 million workers to prevent further weakening of private consumption.

The State Affairs Planning Committee, a key government decision-making body, is set to determine the fate of 72 tax exemption programs slated to expire this year. These programs collectively amount to approximately 19 trillion KRW ($13.7 billion).

Among these is the widely utilized credit card deduction, a program introduced in 1999 that has been extended multiple times over the past two decades.

This deduction allows workers to reduce their taxable income by subtracting a portion of their credit card spending, effectively lowering their tax burden. In the previous year alone, this program saved taxpayers around 5.3 trillion KRW ($4 billion).

The benefit is particularly significant for over 12.6 million eligible workers, with more than 60 percent of those filing year-end tax settlements claiming the deduction.

Many of these workers, especially those earning between 45 million and 50 million KRW ($33,750 to $37,500) annually, received refunds of about 450,000 KRW ($337.50), often perceived as an additional paycheck.

Rep. Jin Sung-joon of the ruling Democratic Party of Korea dismissed the possibility of terminating the deduction program during a policy coordination meeting at the National Assembly on Thursday. He emphasized that with the urgent need to boost consumer spending, allowing the credit card income deduction to expire would be counterproductive.

Jin’s statement came in response to claims made by Kim Jung-jae, a top policymaker of the main opposition People Power Party. On Tuesday, Kim suggested that the Lee administration was considering taxing social support payments and ending the credit card income deduction.

“They’re putting on a show of supporting the economy and encouraging consumption, while secretly planning to tighten the purse strings,” Kim asserted. She insisted that social support funds, such as disaster relief payments, should remain tax-free. Kim added that suddenly planning to tax these funds “is just a way to reclaim money already distributed, which I consider an unjust ‘recovery tax’ policy.”

Speculation about the potential elimination of this popular deduction stems from concerns over the country’s dwindling tax revenue base. Recent supplementary budgets, including universal stimulus measures, have further strained government finances.

Data from Rep. Ahn Do-geol of the Democratic Party reveals that Korea faced an estimated revenue shortfall of about 87 trillion KRW ($65.25 billion) between 2023 and 2024, with an additional 17 trillion KRW ($12.75 billion) shortfall projected for this year.

Critics caution that eliminating such popular benefits could trigger public backlash and further dampen consumer spending at a time when private consumption is already weak.

“Considering the fragile state of domestic consumption, we need to encourage card spending. This is especially crucial as small business owners are repeatedly calling for the government to increase the income deduction rate for purchases made at traditional markets,” said Seo Ji-yong, a professor of business administration at Sangmyung University.

Private consumption declined by 0.1 percent in the first quarter of this year. Some institutions project growth rates in the mid-1 percent range for the remainder of the year, signaling a likely slowdown in economic recovery.