The tax on a Korean severance payout is not set by how much you received alone. On the same 100m won, the tax is 9.42m won after five years of service and 240,000 won after thirty — a factor of 39. The statute divides the payment by years of service, runs it through the rate table, and multiplies it back.
1. What splits the tax. Article 48(1) of the Income Tax Act divides the retirement income by years of service and multiplies by 12 to produce a figure the statute names “converted salary”. Longer service makes that number smaller, which drops it into lower brackets.
2. Two deductions apply in sequence. A service-years deduction (item 1) comes off first; after the conversion, a converted-salary deduction (item 2) comes off as well. Both tables sit inside the article.
3. There is a zero band. Article 48(2) says that where the retirement income falls short of the deduction, the deduction equals the income — at twenty years of service, nothing is owed up to 50m won.
The calculator below carries both statutory tables and the rate table and shows all six steps in order, so you can see where each cut happens.
| Step | Basis | Won |
|---|
This calculator carries only articles 48 and 55(2). Years of service are rounded up as the statute directs — any part-year counts as a full year. The executive severance cap (art. 22(3)), the transitional rules for service before 31 December 2011, and the special rules on what counts as retirement are not included. Local income tax is not included either, because we did not verify the provision behind it. The withholding statement issued by the employer or the financial institution is authoritative; this is an estimate.
One clause does all the work — “divide, then multiply by 12”
Income Tax Act, article 48 (retirement income deduction) (1) For a resident with retirement income, the amount under item 1 shall be deducted from the retirement income for the tax period, and that amount shall be divided by the years of service (any period of less than one year counting as one year …) and multiplied by 12 (hereafter in this paragraph, “converted salary”), from which the amount under item 2 shall be deducted. <Amended 23 Dec 2014, 31 Dec 2022>
A severance payout is money accumulated over many years but received in one. Dropped straight into a progressive rate table it would look like a single explosive year of income. The statute divides it back down to one year’s worth, applies the rate, and then multiplies by the years again to restore the size.
Income Tax Act, article 55 (tax rates) (2) The income tax on a resident’s retirement income shall be the amount calculated in the following order (hereafter “calculated retirement income tax”). <Amended 1 Jan 2013, 23 Dec 2014>
1. The amount obtained by applying the rates under paragraph (1) to the retirement income tax base for the tax period
2. The amount under item 1 divided by 12 and multiplied by the years of service
3. Deleted <23 Dec 2014>
The division and the multiplication sit on opposite sides of the rate table. Dividing happens before the rate is applied; multiplying happens after. The progressive table runs once in between — and that is where years of service do their work.
Two deduction tables, applied in order
First, the service-years deduction, taken before the division.
| Years of service | Deduction | At 20 years |
|---|---|---|
| 5 or fewer | 1m won × years | — |
| over 5 to 10 | 5m won + 2m won × (years − 5) | — |
| over 10 to 20 | 15m won + 2.5m won × (years − 10) | 40m won |
| over 20 | 40m won + 3m won × (years − 20) | — |
Second, the converted-salary deduction, taken after the division. Note that the lower the band, the higher the deduction rate — below 8m won it is the whole amount.
| Converted salary | Deduction | Marginal rate |
|---|---|---|
| 8m won or less | 100 per cent of the converted salary | 100% |
| over 8m to 70m won | 8m won + 60 per cent of the excess over 8m | 60% |
| over 70m to 100m won | 45.2m won + 55 per cent of the excess over 70m | 55% |
| over 100m to 300m won | 61.7m won + 45 per cent of the excess over 100m | 45% |
| over 300m won | 151.7m won + 35 per cent of the excess over 300m | 35% |
The two tables join up. Running 60 per cent from 8m to 70m gives 8 + 62 × 0.6 = 45.2m won, which is exactly the base of the next row. At 100m, 45.2 + 30 × 0.55 = 61.7m; at 300m, 61.7 + 200 × 0.45 = 151.7m. We checked each junction by hand and every one matched the printed figure.
Same 100m won, and years of service split it 39 ways
| Service | Tax, won | Rate | Converted |
|---|---|---|---|
| 5 yr | 9,418,750 | 9.42% | 228m |
| 10 yr | 3,875,000 | 3.88% | 102m |
| 20 yr | 1,120,000 | 1.12% | 36m |
| 30 yr | 240,000 | 0.24% | 12m |
9,418,750 ÷ 240,000 = 39.2. The reason is visible in the converted-salary column. At five years it comes to 228m won, which lands in the 35 per cent deduction band and the 38 per cent rate band. At thirty years it is 12m won — the 60 per cent deduction band and the 6 per cent rate band.
The two tables move the same way. A smaller converted salary is deducted more generously and taxed more lightly, so the gap compounds. How large the payout itself is comes from a different calculation — the Korean severance pay calculator works it out from average wages.
At twenty years, nothing is due up to 50m won
Same article, paragraph (2) Where the retirement income for the tax period falls short of the deduction under paragraph (1) item 1, that retirement income shall be the deduction. <Amended 23 Dec 2014>
At twenty years the service-years deduction is 40m won. A smaller payout has the deduction reduced to match it, leaving a base of zero. And because the converted-salary deduction is 100 per cent up to 8m won, the zero band continues past 40m for a while.
| Payout | Tax, won | Rate | Net |
|---|---|---|---|
| 30m | 0 | 0.00% | 30m |
| 50m | 0 | 0.00% | 50m |
| 80m | 640,000 | 0.80% | 79.36m |
| 150m | 3,700,000 | 2.47% | 146.3m |
| 300m | 18,040,000 | 6.01% | 281.96m |
| 500m | 53,075,000 | 10.62% | 446.925m |
Following the 50m case through: 50m − 40m = 10m won; divided by 20 and multiplied by 12 gives a converted salary of 6m won; that is under 8m, so it is deducted in full — base zero. You can reproduce this in the calculator above.
What one year is worth
On a 100m won payout, a single year of service moves the tax like this.
- 9 → 10 years: 4,353,750 → 3,875,000 won. A drop of 478,750 won.
- 19 → 20 years: 1,196,000 → 1,120,000 won — 76,000 won.
- 20 → 21 years: 1,120,000 → 1,032,000 won — 88,000 won.
The same one year is worth far more early on. Shorter service means a larger converted salary, and larger figures straddle rate boundaries more sharply. And because the statute rounds any part-year up, a single extra day can add a whole year — which is what the months field above is for.
Where readers usually go wrong
Does taking it as a pension reduce the tax?
This piece covers the lump sum. Drawing it as a pension runs on different provisions, and the eleventh year is a turning point — that is set out in how to draw down a Korean pension.
What if it was settled early, mid-employment?
Whether the service clock restarts at that point matters a great deal, because short service raises the tax sharply. Separately, what counts as a permissible early withdrawal is a closed list in the Enforcement Decree — read clause by clause in our early withdrawal piece.
The calculator disagrees with my payslip
It carries only articles 48 and 55(2). The executive cap (art. 22(3)), the pre-2012 transitional rules and the special retirement-determination rules are not in it, and local income tax is excluded because we did not verify its provision. A large gap most likely comes from one of those.
Does DB or DC change it?
The taxing provisions are the same. What differs is the amount received, and that changes the tax — see Korean retirement pensions, DB versus DC and, for the wider structure, the three tiers of Korean pensions.
The tax comes from two numbers: how much, and how long. The second one moves harder than the first.
Sources
- Korean Law Information Center, Ministry of Government Legislation — statutory text — Income Tax Act, article 48. The main text of paragraph (1) with its “divided by years of service and multiplied by 12”, the service-years table in item 1, the converted-salary table in item 2 and the shortfall rule in paragraph (2) are transcribed from the article. This version is in force from 1 January 2026, Act No. 21221 (amended 23 December 2025).
- Korean Law Information Center — statutory text — Income Tax Act, article 55. The two-item ordering in paragraph (2) and the eight-band rate table in paragraph (1), running from 6 to 45 per cent, come from there. Same version.
- The arithmetic is ours — both provisions were transcribed into code, and the calculator and every table in this article run through the same function. We also checked by hand that the two deduction tables join at their boundaries (8m → 70m gives 45.2m; → 100m gives 61.7m; → 300m gives 151.7m — each matching the next row’s base).
Where to check further
- Local income tax. A separate local levy applies to retirement income, but we did not verify the provision behind it — check Hometax or Wetax.
- The executive cap and transitional rules. The article 22(3) cap and the treatment of service before 2012 are not covered here — the National Tax Service publishes guidance on both.
- The actual withholding statement. The retirement income withholding statement issued by the employer or financial institution is the authoritative figure. This calculator exists to show the structure.
Written as of August 2026. The quoted provisions are the text as published by the Korean Law Information Center, and the two deduction tables appear in the article as images, so we read them from the screen and transcribed them. Every figure in the tables is our own calculation from the statute, using the same code as the calculator. Our other everyday tools are in the calculator index.
