Year-end tax settlement called ‘13th month bonus’.Since items and limits change slightly every year, it is easy to miss out on possible deductions if you do not organize them in advance.We have divided the deduction items applicable in 2026 (based on 2025 imputed income) into income deductions and tax credits.💡 For your information, the year-end tax settlement that will be conducted in early 2026 is a procedure that is based on the income earned during the year of 2025.In other words, the expression “2026 year-end tax settlement” refers to the time of reporting, and the actual application standard is the income attributable to 2025.What is the difference between income deduction and tax credit?Income deduction: A method of subtracting a certain amount from the ‘income’ itself, which is subject to tax.The higher the tax rate bracket, the greater the tax savings.Tax deduction: A method of deducting a certain amount (or percentage) directly from the calculated tax amount.It is relatively easy to predict because a certain percentage of expenses is reduced regardless of the size of income.If you take care of both methods, your refund amount will vary greatly, so it is important to take care of items that fit your income level and spending pattern.Major income deduction itemsitemdetailpersonal deductionIf your spouse, parents, or children have an annual income of 1 million won or less (if you only have earned income, your total salary is 5 million won or less), you are eligible for basic deduction.Parents who live separately may be required to provide proof of actual support.Credit card, etc. usage deductionDeduction for amounts used in excess of 25% of total salary.The deduction rate for check cards and cash receipts is higher than for credit cards.Comprehensive housing subscription savingsA portion of the amount paid by the head of the household without a home is deducted from income.Deductions related to housing fundsDeduction for housing-related expenses, such as repayment of principal and interest on a lease loanNotable change in 2026 (attributable to 2025): Starting from July 1, 2025, swimming pool and gym usage fees will be classified as cultural and sports expenses, and an additional deduction rate of 30% will be applied to credit card income deductions.If you spend a lot on exercise, this is an item you should not miss.Major tax deduction itemsitemDeduction rate/limitPension account (pension savings + IRP)Tax deduction based on payment amount, up to 9 million won for both accounts combinedmedical expenses15% deduction for expenses exceeding 3% of total salaryeducation expenses15% deduction for education expenses for yourself and your children.There is no limit to 15% of your own graduate school tuition, and your child’s university tuition is capped at 9 million won per person (maximum 1.35 million won).Monthly rent tax deductionThis applies to non-household heads of households with a total salary of KRW 80 million (comprehensive income amount of KRW 70 million) or less.15-17% of monthly rent payment, limit is 10 million won per yearMarriage Tax CreditA deduction of 500,000 won per person, up to 1 million won, is provided to couples who register their marriage from 2024 to 2026.Can only be received once in a lifetimeIn terms of education expenses, it is important to note that if a child’s income exceeds 1 million won, he or she is not eligible for personal deductions and therefore cannot receive a deduction for education expenses.In addition, the scope of education expense deductions for arts and physical education academy fees for first and second graders of elementary school is scheduled to expand from 2026, so it is a good idea to keep it if your child is of that age.Income deduction vs tax credit, which is more advantageous?Income deductions are relatively advantageous for high-income earners with high tax rates.Because the tax base itself is lowered, the higher the tax rate bracket, the greater the tax savings.Since tax credits reduce a certain percentage of expenditures regardless of the size of income, the effect is felt clearly even for low-income workers.It is a good idea to consider your expected tax bracket and expenditure items and devise a strategy on which deductions to take first.How to prepareThe Hometax year-end tax settlement simplification service is held every year in mid-January.Most items (card usage, medical expenses, education expenses, etc.) can be loaded automatically here.For items for which data is not displayed in the simplified service (some academy fees, donation receipts, etc.), you must obtain supporting documents directly from the relevant institution and submit them to the company.The income and age conditions for the personal exemption for dependents may change every year, so it is recommended to check eligibility before applying.finishing tipsIncreasing the use of check cards and cash receipts rather than credit cards is often advantageous in terms of deduction rates.Pension savings and IRP have a significant tax saving effect, but there are disadvantages to early withdrawal, so it is recommended to set the payment amount along with your retirement fund plan.Since the monthly rent tax deduction only applies to householders who do not own a home, check the tenant’s name and householder requirements in the contract in advance.This article has been written for general information purposes.The exact deduction requirements and limits may vary depending on individual circumstances, so be sure to check with the National Tax Service’s Hometax (hometax.go.kr) or a tax expert before reporting.
