Understanding Korean income tax can be challenging for foreign employees and overseas HR teams. Korea applies progressive income tax rates to most employees, while eligible foreign employees may elect a special 19% flat tax rate.
Another important feature of the Korean system is the Year-End Tax Settlement, under which the employer recalculates and finalizes an employee’s annual wage income tax.
Progressive Income Tax Rates for 2026
Under the standard method, Korean income tax is calculated using progressive rates ranging from 6% to 45%.
These rates apply to taxable income after applicable deductions—not directly to gross salary.
The 2026 national income tax brackets are:
- Up to KRW 14 million: 6%
- Over KRW 14 million and up to KRW 50 million: 15%
- Over KRW 50 million and up to KRW 88 million: 24%
- Over KRW 88 million and up to KRW 150 million: 35%
- Over KRW 150 million and up to KRW 300 million: 38%
- Over KRW 300 million and up to KRW 500 million: 40%
- Over KRW 500 million and up to KRW 1 billion: 42%
- Over KRW 1 billion: 45%
A local income tax equal to 10% of the national income tax is imposed separately. Therefore, the effective marginal rates, including local income tax, range from 6.6% to 49.5%.
Special 19% Flat Tax Rate for Foreign Employees
Eligible foreign executives and employees may elect to have their Korean employment income taxed at a flat national income tax rate of 19%.
Local income tax is added at 10% of the national income tax, resulting in a combined effective rate of 20.9%.
Under the law effective in 2026, this election may generally be available when:
- The individual is a foreign executive or employee, excluding a daily worker;
- The individual first begins providing employment services in Korea on or before December 31, 2026;
- The income is earned within 20 years from the individual’s first employment service date in Korea; and
- The employee is not excluded under the related-party employer restrictions.
The December 31, 2026 date is a commencement eligibility deadline. It does not mean that the flat-tax treatment automatically ends after 2026 for an employee who already qualifies.
The Flat Rate Is Applied to a Broader Income Base
The 19% rate may appear lower than the top progressive rates, but it is applied to a much broader income base.
When the flat-tax method is elected:
- Employment income is generally taxed without the ordinary employment income deduction;
- Personal and dependent deductions are not available;
- Most income deductions and tax credits cannot be claimed;
- Most exemptions and tax reductions do not apply; and
- Amounts normally treated as non-taxable may generally be included in the flat-tax base, subject to limited statutory exceptions.
The flat rate is therefore not automatically more beneficial for every foreign employee.
The progressive method may produce a lower liability for employees with lower compensation or substantial deductions. The flat-rate method is more likely to be beneficial for highly compensated employees with relatively few available deductions.
The two methods should be compared before completing the employee’s annual tax settlement.
Korea’s Employer-Administered Year-End Tax Settlement
Monthly Korean payroll withholding is provisional. After the end of the calendar year, the employer must recalculate and finalize each employee’s annual wage income tax through Korea’s Year-End Tax Settlement, commonly referred to as YETS.
This process is generally completed in February of the following year.
During YETS, the employer:
- Confirms the employee’s annual employment income;
- Reviews eligible deductions and tax credits;
- Compares the progressive and flat-tax methods when applicable;
- Calculates the final national and local income tax liabilities;
- Deducts any additional tax due or processes a payroll refund; and
- Issues the employee’s annual wage and salary income withholding receipt.
For many employees whose only income is employment income properly included in YETS, this employer-administered process performs much of the role that an individual annual income tax return would serve in other countries.
A separate individual income tax return may still be required if the employee has other income, multiple employers not properly consolidated during YETS, overseas compensation, equity income, or omitted payroll items.
Additional Points for Foreign Employees
Foreign nationality alone does not determine whether an employee is a Korean tax resident. Tax residency, the source of income, the length of stay, applicable tax treaties and the employee’s individual circumstances must also be reviewed.
Foreign employees and their employers should pay particular attention to:
- Compensation paid outside Korea;
- Bonuses paid by an overseas headquarters;
- Stock options, RSUs and other equity compensation;
- Tax equalization or tax protection arrangements;
- Shadow payroll obligations;
- Tax treaty exemptions;
- Multiple Korean or overseas payrolls; and
- Changes in residency or assignment status during the year.
These items can affect both monthly payroll withholding and the final Year-End Tax Settlement.
Practical Takeaway
For 2026, eligible foreign employees may continue to choose between Korea’s progressive tax rates and the special 19% flat tax method.
The best method cannot be determined from the headline tax rate alone. Employers should compare the employee’s full compensation, deductions, expatriate benefits and overseas-paid income before completing payroll and YETS.
Incorrect treatment may remain unnoticed during monthly payroll and surface later during Year-End Tax Settlement, an individual tax filing or a tax authority review.
For assistance with Korean payroll withholding, expatriate taxation or Year-End Tax Settlement, please contact our English-speaking tax and payroll team.
Official References
- Korean National Tax Service – Year-End Tax Settlement Guidance for Foreign Employees
- Korean National Tax Service – Tax Forms for Foreign Employees
- Restriction of Special Taxation Act, Article 18-2
