The government is moving to reduce the withholding tax rate for freelancers and other income earners from 3.3% to 2.2%, including local income tax. The National Tax Service (NTS) plans to expand tailored tax support, including tax refunds without fees and improvements to eligibility for work and child tax credits.
On October 1, the NTS held a communication meeting with representatives of income earners at the National Assembly in Yeouido, Seoul. This meeting, co-hosted for the first time by the NTS and lawmakers, included NTS Commissioner Im Kwang-hyun and key officials, as well as members of the National Assembly's Finance and Economy Planning Committee.
During the meeting, representatives from various sectors, including delivery riders, designated drivers, caddies, and broadcast writers, shared their tax-related challenges and suggestions for system improvements.
The government's tax reform plan includes lowering the income tax withholding rate for income earners from 3% to 2%. When local income tax is included, the tax deducted at the time of payment will decrease from 3.3% to 2.2%.
A lower withholding tax rate will increase the funds available for income earners immediately. However, since withholding is a prepayment of income tax, a reduction in the rate does not necessarily mean a uniform decrease in the final tax burden. The actual tax amount paid and the possibility of refunds will vary based on individual income and deductions.
Commissioner Im stated, "It is more convenient for the public to collect the appropriate amount from the start rather than taking too much and refunding later," and requested the National Assembly's active cooperation to finalize the government's tax reform plan that includes the withholding rate reduction.
The NTS is also promoting tax refunds without fees. Since September 1, it has informed 820,000 income earners, including those who have not filed comprehensive income tax for 2021-2025, about a total of 163.5 billion won in refunds.
To facilitate the refund process, the NTS has provided a pre-filled tax return form that allows taxpayers to apply for refunds through HomeTax, SmartTax, or ARS without additional fees. Starting this year, the ARS reporting process has been simplified to automatically fill in contact information and refund accounts.
The government is also working to extend the registration deadline for business owners to qualify for work and child tax credits. Currently, service providers who receive payment directly from consumers must register their business by December 31 of the previous year to receive credits. The NTS has proposed amending the enforcement decree to extend the registration deadline by about eight months to the date of credit determination to reduce cases where individuals miss out on credits due to lack of awareness.
The NTS plans to discuss the need for amendments with the Ministry of Economy and Finance and support tailored application guidance and promotion starting in the first half of next year.
Additionally, the NTS is expanding social insurance and job support using income data. Since 2021, it has been collecting income data from income earners monthly and providing it to relevant agencies, which has supported the additional enrollment of 79,000 individuals in employment insurance.
In the future, the NTS aims to expand the provision of income data so that individuals do not need to submit proof of employment when applying for adjustments to national pension contributions. It is also working on a plan to reflect work experience in competency recognition certificates to assist freelancers in their job search, targeting implementation in January next year.
Support for the recovery of livelihood-type delinquent taxpayers will continue. Since March, the NTS has been implementing a system that eliminates the payment obligations of delinquent small business owners who meet certain criteria. Starting this year, it will also add special labor providers, such as delivery riders and designated drivers, to the list of those eligible for exemptions from late payment penalties and support for installment payments, expanding the criteria for delinquent amounts from 50 million won to 80 million won.
Organizations attending the meeting welcomed the proposal to lower the withholding tax rate but emphasized the need for tax consultations and guidance that reflect the characteristics of each profession. The NTS plans to pursue improvements to laws and systems based on feedback from the field.
* This article has been translated by AI.
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