When you are paid severance in Korea, the employer usually withholds retirement income tax first. But Income Tax Act Art. 146(2) says that where retirement income is in, or is paid into, a pension account on the retirement date, or is put into a pension account within 60 days of being paid, the tax is not withheld until it is drawn other than as a pension. If it was already withheld, you can apply for a refund. The Decree calls the postponed amount “deferred retirement income tax”, and drawing it later as a pension cuts the rate. The calculator works out how much is deferred and what it becomes when drawn as a pension.
1. Into a pension account (such as an IRP) within 60 days and nothing is withheld; if it was, apply for a refund (Art. 146(2)).
2. Deferred tax = computed retirement income tax × amount put in ÷ retirement income (Decree Art. 202-2(1)).
3. Drawn as a pension: 70% of the lump-sum rate up to year 10, 60% to year 20, 50% after (Art. 129(1)5-3).
Calculator
Updates as you type. Deferred tax = computed tax × amount put in ÷ retirement income (if already withheld, the income minus the tax withheld). The lump-sum rate here is deferred tax ÷ amount put in, our simplification assuming no investment return and no earlier withdrawals. Local income tax is not included. Amounts under 1 won are dropped (our method).
Three rules, as written
| Type | What the source says | Worth noting (ours) |
|---|---|---|
| Income Tax Act Art. 146(2) | Where a resident’s retirement income (1) is in, or is paid into, a pension account on the retirement date, or (2) is paid into a pension account within 60 days of being received, income tax on it is not withheld until it is drawn other than as a pension; if already withheld, the resident may apply for a refund | The tax is postponed, not cancelled |
| Decree Art. 202-2(1) | Tax not withheld or refunded (deferred retirement income tax) = computed retirement income tax × amount under Art. 146(2) ÷ retirement income amount; for a refund, the retirement income amount is after deducting the tax already withheld | Read from the formula image on the law database |
| Income Tax Act Art. 129(1)5-3 | Withholding rate on retirement income drawn as a pension: 70/100 of the lump-sum rate where the actual years of receipt are 10 or fewer, 60/100 for over 10 up to 20, 50/100 for over 20 | The longer you spread it, the lower |
| Decree Art. 187-3 | Actual years of receipt = counted from the tax year of the first pension payment, adding each later tax year in which a pension is received (separately for each account). Lump-sum rate = the tax that would be withheld on a lump-sum draw ÷ the amount drawn | Years with no payment don’t count, on our reading |
| Decree Art. 202-3(1) | A person applying for the refund submits a tax deferral account report to the pension account provider when the money is paid in | A form for the financial firm |
Four sums — our example
| Case (our example) | Deferred or refunded | Worth noting (ours) |
|---|---|---|
| Retirement income 100 million won, tax 5 million, all 100 million straight into an IRP | 5 million won not withheld | 5m × 100m ÷ 100m |
| Same person, employer withholds 5 million and pays 95 million → all 95 million into an IRP within 60 days | 5 million won refunded | The divisor is 100m − 5m = 95 million |
| Same, but only 50 million into the IRP | 2,631,578 won refunded | 5m × 50m ÷ 95m, fractions dropped |
| Before withholding, only 60 million into the IRP | 3 million won not withheld | The 2 million on the other 40 million is paid now |
In the first case, deferred tax of 5 million ÷ 100 million put in gives a lump-sum rate of 5% (our simplification). Drawn as a pension of 10 million won a year, withholding is 70% of 5%, or 3.5%, in years 1–10: 350,000 won; 60%, or 3%, in years 11–20: 300,000 won; and 50%, or 2.5%, after year 20: 250,000 won. Taken as a lump sum it is 5%, or 500,000 won. In practice investment returns, the annual pension limit and local income tax all play a part, so the provider’s withholding receipt may differ.
The computed retirement income tax is in retirement income tax calculator; when severance must go into an IRP, and the exceptions, are in severance IRP transfer rule.
Checklist
- ☐ Into a pension account within 60 days of the severance being paid
- ☐ If tax was withheld, submit the tax deferral account report when paying in
- ☐ Put in only part and only that share is deferred or refunded
- ☐ Drawing as a pension past year 10 or year 20 lowers the rate further
Questions that remain
Is local income tax refunded too?
The Income Tax Act articles we read cover income tax only. Deferral or refund of local income tax on retirement income is in the Local Tax Act, which we didn’t read this time.
Can consolation payments or leave pay go in too?
Art. 146(2) is a rule for “retirement income”. Money classed as wage income isn’t covered, on our reading. Which box a payment is in is covered in severance pay income type checker.
Sources
- Korean law database (law.go.kr) — Income Tax Act Arts. 129, 146, 146-2 — source (current text, effective 1 July 2026, Act No. 21221; checked 26 October 2026). Art. 146(2) (no withholding if paid into a pension account within 60 days; refund), Art. 129(1)5-3 (70/60/50 hundredths by actual years of receipt), Art. 146-2 (pre-2013 deferred retirement income).
- Korean law database — Income Tax Act Enforcement Decree Arts. 187-3, 202-2, 202-3 — source (effective 1 October 2026, Decree No. 36737; checked 26 October 2026). Actual years of receipt and the lump-sum withholding rate, the deferred tax formula (read from the formula image’s alt text), the tax deferral account report.
- Not read. The Local Tax Act (local income tax on retirement income), the annual pension limit (Decree Art. 40-2), tax on investment returns, Art. 148 settlement.
- What we added. The “worth noting” column and the Korean everyday gloss.
Where to check further
- The financial firm holding your pension account — the deferral report and the actual deferred tax.
- Your employer’s retirement income withholding receipt — the computed tax and retirement income amount.
Written on 26 October 2026. The content is from the source; the glosses are ours.
