Korean Noran Umbrella Mutual Aid Deduction Calculator

The Noran Umbrella (yellow umbrella) scheme is a monthly savings plan that sole proprietors and the heads of small companies pay into as a cushion against closing down or retiring, and the tax code encourages membership by allowing the contributions as an income deduction. This calculator takes the amount you paid in this year and your income, and shows how much actually comes off your taxable income, which is the deduction, and how much tax that saves. It applies the income-band limits, the reduction for real estate rental income, and the salary condition for company heads.

Knowing why it is an income deduction rather than a tax credit makes the result easier to read. An income deduction does not reduce the tax directly; it reduces the tax base the tax is charged on. The saving is therefore the deduction multiplied by your own income tax rate, and someone in a higher band saves more on the same contribution. That is why the calculator asks for your tax rate.

The most common user is a sole proprietor approaching year end who wants to know how much more to pay in to reach the limit. Each income band has its own cap, so paying in more than that earns nothing extra this year. The calculator shows the room left up to the limit, so you can decide what to contribute before December.

Business owners with rental income mixed in, and heads of companies, should run it before joining. Real estate rental income cuts the deduction in proportion to its share, and a company head whose total salary exceeds ₩80 million gets no deduction at all. It is a way to check whether the deduction actually materialises in your situation.

The basis is 조세특례제한법 제86조의3제1항. The limit is ₩6 million where business income is ₩40 million or less, ₩5 million above that up to ₩60 million, ₩4 million above that up to ₩100 million, and ₩2 million above ₩100 million. The lower the income, the higher the limit. The head of a company uses the same table on the basis of earned income, but only if total salary is ₩80 million or less.

The calculation has four steps. First, the income identifies the band and its limit. Second, the lower of this year's contributions and the limit is taken. Third, if there is real estate rental income, that amount is multiplied by the share of total income that is not rental income, and the result cannot exceed the non-rental income. Fourth, the deduction is multiplied by your income tax rate to give the actual saving. When the benefit is eventually paid out on closing the business or similar, it is taxed as retirement income under paragraph 3 of the same article.

Take the calculator's defaults: a sole proprietor with business income of ₩50 million who paid in ₩5 million this year and is in the 15% band. Income of ₩50 million falls in the band above ₩40 million and up to ₩60 million, so the limit is ₩5 million. The ₩5 million contribution equals the limit, the deduction is ₩5 million, and 15% of that is a tax saving of ₩750,000. The limit is used up, so there is no room to add more.

If ₩25 million of that ₩50 million were real estate rental income, the picture changes. Non-rental income is half the total, so only half of the ₩5 million, or ₩2.5 million, is deductible and the saving falls to ₩375,000. Someone with rental income only has a share of zero and gets no deduction at all.

The first is treating it like a pension savings tax credit and expecting a fixed percentage of the contribution back. Because it is an income deduction, the return depends on your tax rate, and a low rate means a small saving. The second is assuming the limit rises with income. It is the reverse: once income passes ₩100 million, the limit drops to ₩2 million.

The third is thinking contributions above the limit are also deductible. The excess earns no deduction this year, although you can keep paying in and the eventual payout grows accordingly. The fourth is cancelling the plan on a whim when money is tight. A payout for a recognised reason such as closing the business or death is retirement income, but a voluntary cancellation without such a reason is taxed as other income, which is worse. When winding up a business, file the closure first and then claim the benefit.