There is no thirteenth-month bonus — how the same ₩40M salary became a ₩117K or a ₩1.44M refund

A colleague at the next desk earns the same salary. On February payday, the colleague got ₩1.44M back and I got ₩117K. Same company, same ₩40M salary, same tax withheld every month, and the refunds differed by more than ₩1.3M. The colleague was not lucky. People call year-end settlement the thirteenth-month bonus, but a bonus is money the company gives you and this is money you already paid. How much of it comes back is decided by paperwork.

Year-end settlement in one sentence: compare the tax estimated and withheld each month with the tax finalized at year-end, and settle the difference. Paid too much in advance and you get a refund; too little and you pay the balance.

The income tax taken from each monthly paycheck is not a final tax. It is an advance, withheld from an estimate table called the simplified tax table, which looks only at your pay and family size and collects roughly what it expects. It knows nothing of how much you spent on cards, whether you pay rent, or whether you put money into a pension account. So when the year ends, your real circumstances go in on paper, the final tax is recalculated, and the difference from the estimate is settled. A big refund is not a gain: you were over-withheld all year and lent that money interest-free before getting it back. And a balance due is not a loss: you were under-withheld and are paying the rest. The goal of settlement is not a big refund but a smaller final tax.

The final tax comes down in four steps. Follow a ₩40M earner claiming only the self deduction. Step 1, the earned-income deduction: a table-set amount comes off automatically as the employee's notional expenses, which is ₩11.25M on ₩40M. Step 2, income deductions: the ₩1.5M basic deduction for yourself, plus items like the employee's share of National Pension, health-insurance and employment-insurance premiums and card spending. The example assumes ₩5M for those, separately from the basic deduction. The remaining ₩22.25M is the tax base. Step 3, the rate: 6% up to ₩14M and 15% above, giving an assessed tax of ₩2,077,500. Step 4, tax credits, subtracted directly from the computed tax: the earned-income tax credit of ₩684,000 comes off automatically, leaving a final tax of ₩1,393,500, or ₩1,532,850 with local income tax. If ₩1.5M of income tax was withheld over the year, local income tax was withheld alongside it. Against the ₩1.65M paid in advance in total, ₩117,150 comes back. That is me in the opening.

The word deduction appeared twice: income deductions in step 2 and tax credits in step 4. The names sound alike but they are different things. An income deduction cuts the amount before the rate is applied, so the tax actually saved is the deduction times your rate. Someone in the 15% band who deducts ₩4M saves ₩600K; the same ₩4M saves only ₩240K for someone in the 6% band. A tax credit is subtracted from the finished tax as is: a ₩600K credit cuts the tax by ₩600K regardless of rate. Pension accounts are a tax credit, card spending an income deduction, monthly rent a tax credit. In the 15% band, a ₩1M income deduction and a ₩150K tax credit are the same size.

Now the colleague's bill. Same ₩40M salary, but the colleague built income deductions up to ₩9M by claiming card spending and housing items on top of pension and health-insurance premium deductions, and took a further ₩600K tax credit through pension-account contributions. The tax base drops to ₩18.25M, the assessed tax is ₩1,477,500, and after credits the final tax is ₩193,500, or ₩212,850 with local income tax. Against the ₩1.65M paid in advance, ₩1,437,150 comes back. A ₩4M difference in income deductions and a ₩600K difference in tax credits returned, local income tax included, as a ₩1.32M difference in refunds. The colleague did only three things: spent in deductible ways, saved into a creditable account, and filed the paperwork. It was no trick, just claiming the items the law had already promised to allow. And right now neither bill is final yet: the choices made before the year ends decide which of the two it comes to resemble, and doing nothing settles it at ₩117K by default.

If you missed a deduction last year or the year before, it is not over. There is a procedure called a claim for correction: within five years of the deadline by which the employer pays the year-end settlement tax to the tax office (the 10th of the month after the settlement, usually March 10) you can ask for the tax back with the missed deduction applied. It is a right set out in the Framework Act on National Taxes. Typical cases: a rent tax credit lost in a move, dependent paperwork never filed out of ignorance, a year you left the job before handing in deduction paperwork. If you filed a global income tax return yourself in May for that year, the clock starts from that filing deadline instead. Open past years' payment statements on Hometax to see what was applied in each year. The door swings one way, though: it is for claiming what you are owed; a deduction you wrongly received belongs to an amended return. Framework Act on National Taxes Art. 45(1) includes employees who only did the year-end settlement among those who may file one.

Two things to do now. First, hold the rest of this year's spending and saving up against the deduction list, because only choices made before the year ends enter February's bill. Second, open last year's payment statement and check for anything missed. Today's story is the skeleton only: card-deduction thresholds and caps, the requirements for medical and education expenses, and the income tests for dependents each have their own rules. What split ₩1.3M was not the salary but the preparation done by December.