₩50M severance pay and the tax is ₩730,000 — 1.5%
On ₩5M a month for ten years, severance pay is ₩49.45M and the retirement income tax, including local tax, is ₩733,494, an effective 1.48%. Severance gets two deductions, for years of service and on the annualised amount, and the rate is applied after dividing by years of service. The same pay for one year is taxed at 2.04%, a higher rate.
Conditions used in the video
- Average monthly pay, last 3 months
- ₩5M
- Years of service
- 10
- Bonus, leave pay
- none
- Service-years deduction
- ₩15M
- Basic rates
- 6 to 45% progressive
Results
- Severance pay
- ₩49,450,549
- Total tax (incl. local)
- ₩733,494
- Effective rate
- 1.48%
- Annualised pay (×12 ÷ years)
- ₩41,340,659
- Annualised-pay deduction
- ₩28,004,395
- Effective rate at 1 year
- 2.04%
At a glance
₩5M a month · 10 years. Tax includes local income tax.
- Severance₩49.45M
- Tax₩730,000
1.48%
Why it works this way
How much tax comes off ₩50M of severance pay? Thinking of income tax on a ₩50M salary you might expect millions. It is ₩730,000.
Because retirement income tax is cut down in three steps.
소득세법 제48조제1항제1호.
- Severance₩5M × 30 days' pay × 10 years ≈ ₩49.45M
- Service-years deduction₩1M a year up to 5, then ₩5M + ₩2M a year to 10 → ₩15M at 10 years
- Remaining₩34.45M
The longer the service, the bigger this deduction. It is ₩40M at 20 years.
Same article, item 2 · 제55조제2항.
- Annualised pay₩34.45M × 12 ÷ 10 = ₩41.34M
- Annualised-pay deductionband ₩8M to ₩70M → ₩28M
- Tax base₩13.34M → basic rates → annualised tax ₩800,000
The annualised-pay deduction falls as the amount rises. Up to ₩8M it is deducted in full, so the tax is zero.
제55조제2항.
- Annualised tax ₩800,000÷ 12 × 10 years = ₩666,813
- Local income tax 10%₩66,681
- Total₩733,494 · effective 1.48%
A lump sum is spread over ten years for the progressive rates, which is why the rate ends up low.
Leave after one year on the same pay and severance is ₩4.94M with ₩100,000 tax, which is 2.04%. A smaller amount but a higher rate, because shorter service means thinner deductions.
Paid into an IRP account, this tax is not withheld now; drawn as a pension it is charged at a 30 to 40% discount. Taken as a lump sum, it is withheld as above.
In short: retirement income tax applies the service-years and annualised-pay deductions and divides by years of service, so ₩5M a month for ten years is ₩730,000 on ₩49.45M, or 1.48%.
The legal basis
Drawn from government announcements and the statutes themselves as primary sources, covering only the relevant part.
근로자퇴직급여 보장법 제8조제1항 (severance pay scheme)
In force In force
An employer must set up a scheme paying severance of at least 30 days' average wages for each year of continuous service.
What this means
The floor for severance pay: about ₩4.94M per year on ₩5M a month.
소득세법 제48조제1항 (retirement income deductions)
In force In force (Act No. 21221, effective 2026-01-01)
From retirement income, a deduction by years of service (₩1M a year up to 5; ₩5M + ₩2M a year to 10; ₩15M + ₩2.5M a year to 20; ₩40M + ₩3M a year beyond) is subtracted; the result divided by years and multiplied by 12 is the annualised pay, from which an annualised-pay deduction (full up to ₩8M; ₩8M + 60% of the excess up to ₩70M; …) is subtracted to give the tax base.
What this means
🔴 Two layers of deduction: ₩15M at ten years plus ₩28M on the annualised pay.
소득세법 제55조제2항 (calculated tax on retirement income)
In force In force
The calculated tax is the basic-rate tax on the retirement income tax base divided by 12 and multiplied by years of service.
What this means
Annualise, apply the rates, divide back by years, so a lump sum does not jump into a high bracket.
Run it on your own numbers
The calculator opens with these conditions already filled in. Change the figures and your own case comes straight out.
Open the Severance Pay Tax Calculator
Frequently asked
Why is severance tax so low?
There are two deductions (service years and annualised pay), and the rate is applied to the annualised amount and then divided by years. Ten years' pay is not treated as one year's income.
Does longer service cut the tax further?
Yes. The service-years deduction grows and the annualised pay shrinks, so the effective rate falls. Same pay: 2.04% at one year, 1.48% at ten.
What if it goes into an IRP?
The retirement income tax is not withheld; it transfers to the IRP, and if drawn as a pension after 55 it is charged at 70% (60% for amounts drawn beyond ten years) of the original tax as pension income tax. A lump-sum withdrawal pays the original tax.
Do bonuses count?
3/12 of the bonus paid in the last year, plus annual leave pay, enter average wages. Enter the annual bonus in the calculator.
Does the company withhold it?
Yes. Retirement income tax is withheld on payment and a withholding receipt is issued. Other retirement income in the same year is aggregated.
Results are estimates based on the inputs and on the rules as at the stated date. They may differ from a lender's actual assessment, and the rules change often. Take professional advice before any decision that matters.