Turning Year-End Tax Settlement into a “13th-Month Salary”: How to Prepare Tax Credit Items in Advance

Every January and February, some people receive a “13th-month salary,” while others end up paying extra. Even with the same annual salary, the reason results differ is simple: whether they prepared tax credit items in advance. Scrambling to collect receipts in December is already too late. That is because key items are recognized only when the actual payment has been completed throughout the year, or at the latest by December 31 of that year. This article summarizes the tax credit items that can genuinely increase your refund, with numbers.

Income Deduction vs. Tax Credit: Which Is More Powerful?

The two work in completely different ways. An income deduction reduces the taxable income on which tax is calculated, while a tax credit directly reduces the tax itself after the calculation is complete. For example, in a taxable income bracket of 50 million won, assuming a 15% tax rate, receiving a 1 million won income deduction produces a tax-saving effect of about 150,000 won. By contrast, receiving a 13.2% tax credit on the same 1 million won directly reduces your tax by 132,000 won. Remembering that income deductions tend to be relatively more advantageous for high earners, while tax credits tend to benefit middle- and lower-income earners more, helps shape your strategy.

Top Priority: Pension Savings + IRP (Annual Limit of 9 Million Won)

This is a core tax-saving tool for employees. If you contribute up to 9 million won per year across a pension savings account and an IRP (individual retirement pension), with pension savings alone capped at 6 million won, you receive a tax credit of 16.5% if your total salary is 55 million won or less, and 13.2% if it exceeds that amount. If someone with total salary of 55 million won or less fills the full 9 million won limit, they receive 9 million won × 16.5% = 1.485 million won back. Even if their salary exceeds 55 million won, the amount is 9 million won × 13.2% = 1.188 million won. However, this money is intended for retirement, so the basic rule is to receive it as pension income after age 55. If you withdraw early, other income tax of 16.5% is withheld, so it should be funded only with spare money you will not need.

The “Transfer” Strategy: Invest Through an ISA, Then Move It to a Pension Account

An ISA (individual savings account) is itself a tax-saving product. Of the net profit inside the account, up to 2 million won is tax-free for the general type, or 4 million won for low-income, farming, and fishing households; any excess is subject only to separate taxation at 9.9%. The difference is significant compared with the 15.4% tax on dividends and interest in a regular account. In addition, if you move ISA maturity proceeds into a pension account within 60 days, you can receive an additional tax credit equal to 10% of the transferred amount, up to 3 million won. In other words, you can invest through an ISA for 3 years to enjoy tax-free benefits, then “transfer” the maturity proceeds into a pension account to expand your credit limit once more.

Easy-to-Miss Items: Donations, Monthly Rent, and Protection-Type Insurance

• Donation tax credit: 15% is credited on amounts up to 10 million won, and 30% on amounts above that. If you donate 1 million won, 150,000 won is deducted from your tax. Limits differ by type, such as political funds, religious donations, and designated donations, so make sure to keep receipts.
• Monthly rent tax credit: Applies to heads of household without a home whose total salary is 80 million won or less. A credit is available for 15% of monthly rent paid within an annual limit of 10 million won, or 17% if total salary is 55 million won or less. If annual rent is 10 million won, you can receive up to 1.7 million won back.
• Protection-type insurance premiums: A 12% tax credit is available on up to 1 million won per year, or 15% for insurance exclusively for persons with disabilities. Eligible products include protection-type products such as auto insurance, indemnity medical insurance, and whole life insurance; savings-type insurance is excluded.
• Medical and education expenses: A 15% tax credit applies to qualifying excess amounts for medical expenses and 15% for education expenses. Because there are thresholds, such as only medical expenses exceeding 3% of total salary being recognized, manage them on a household basis.

A 60 Million Won Salary Employee: “Prepared vs. Unprepared”

1. Person A, unprepared: 0 won in pension account, ISA, and monthly rent credits. The refund is effectively close to 0.
2. Person B, prepared: contributes 9 million won to pension savings + IRP → 9 million × 13.2% = 1.188 million won in tax credits.
3. Add protection-type insurance of 1 million won (12% = 120,000 won) and donations of 500,000 won (15% = 75,000 won).
4. Person B’s total tax credits come to about 1.383 million won. Same salary, same company, but simply designing in advance creates a refund gap of more than 1 million won.

Checklist to Finish Before December 31

Most tax credits are recognized only when payment or settlement is completed within that year. Pension savings and IRP contributions must be deposited by 23:59 on December 31 to count toward that year’s limit; if deposited in January of the following year, they are carried over to next year’s credit. The most efficient refund goes to those who check their expected refund and remaining credit limits in advance through the National Tax Service Hometax “year-end tax settlement preview” service in November or December, then use additional pension account contributions to fill the remaining limit at the last minute.

In short, the order for increasing your refund is: ① use the 9 million won limit for pension savings + IRP → ② use ISA tax exemption and separate taxation, then transfer to a pension account → ③ take care of everyday items such as monthly rent, donations, and insurance premiums. The pros and cons of every credit differ depending on your total salary, tax rate, and life situation, so the numbers in this article are only examples to help you understand the structure, not a recommendation to subscribe to any specific product. If you do not want regrets in December, the fastest first step is to open Hometax “preview” today.