Annual Tax Deduction of Up to 10 million Won

As more tax incentives are offered regarding childcare expenses, families will be able to enjoy a tax deduction of up to 3.9 million if they have a third baby starting from next year.

On August 26, Ministry of Finance and Economy predicted, under the revised taxation system, low salaried workers or self-employed workers can enjoy a tax deduction for up to an annual 11.1 million won of income if they plan to have another baby.

This came from the newly introduced income deduction plan which deducts two million won for the households who plan to have children or adopt a child from their annual income.

Also, tax exemption benefits will be granted for childcare and maternity leave wages. Last year, the childcare and maternity leave wages has been predicted to be 4.4 million won per person on average.

Moreover, parents can enjoy the existing tax deduction systems including the original tax deduction of 1 million won per one child, additional tax deduction of 1 million won for children under six and childcare subsidies of 1.2 million won.

If a household with two children plan to have a third baby, additional tax deduction for 1.5 million won will be offered for the third child.

Consequently, a household with two children can have an additional tax deduction for up to 11.1 million won of income if they plan to have another baby. Based on the worker’s annual salary and income tax rate level, they could enjoy a tax savings from at least 890,000 won up to 3,890,000 won.

Of course, in reality it would be not easy for a worker to satisfy all the requirements at the same time and benefit from all tax incentives. However it is clear, the more children you have, the more tax cuts you will benefit from.

Meanwhile, as more tax deduction benefit increase regarding childcare expenses, the tax burden gap is expected to widen between single households and households with children.

For instance, the tax burden of a single household with an annual salary of 30 million won will be 740,000 won, a 2.3 times higher amount than that of a four family member households, comprised of a breadwinner, a housewife and two children, which only pays 320,000 won.

If the new or expanded tax incentives are included, it is expected to aggravate the tax burden gap further more.

cha@donga.com