Comprehensive Income Tax Filing Rules for Pensioners
Public pensions, pension savings and retirement pensions, and savings insurance differ in how the income is classified and in their filing requirements. In particular, even when private pension income exceeds 15 million won, you may choose between comprehensive taxation and separate taxation at 15%.
- If you receive only a public pension and the paying institution has completed year-end tax settlement, you can generally omit filing a final comprehensive income tax return.
- If taxable private pension income exceeds 15 million won per year, you may choose either comprehensive taxation or separate taxation at 15%.
- Payments received from a retirement account as retirement benefits are subject to retirement income taxation rules, rather than the general 15 million won threshold for private pensions.
- If savings insurance meets the tax-exemption requirements, no income tax is imposed on the insurance gain; otherwise, the gain may be treated as interest income.
- If the annual total of interest and dividend income exceeds 20 million won, it is generally subject to comprehensive taxation of financial income.
Not all pension payments are taxed in the same way. Public pensions such as the National Pension, private pensions received from pension savings accounts and IRPs, pensions funded by retirement benefits, and annuity-style payments from savings insurance are each classified differently for income and filing purposes.
The standards below are general income tax treatment principles for residents of South Korea. When filing an actual return, you should review the source of the pension, tax-exempt amounts, whether you have other income, and the tax laws applicable to the relevant year.
Overview of Taxation by Pension Type
| Type of Payment | Main Classification Under Tax Law | Key Filing Standard |
|---|---|---|
| Public pensions such as the National Pension and Government Employees Pension | Pension income | If you have only public pension income and the paying institution has completed the year-end tax settlement, a final return can generally be omitted |
| Tax-deductible contributions and investment earnings from pension savings accounts and IRPs | Private pension income | The available taxation options differ depending on whether the annual taxable amount is at most 15 million won or more than 15 million won |
| Payments received after transferring retirement benefits to a pension account | Retirement income | Retirement income taxation rules apply, rather than the 15 million won threshold for private pensions |
| Savings insurance meeting tax-exemption requirements | Tax-exempt insurance gains | No income tax is imposed on insurance gains that meet the requirements |
| Savings insurance that does not meet tax-exemption requirements | Interest income | If total annual interest and dividend income exceeds 20 million won, comprehensive taxation of financial income applies in principle |
If You Receive a Public Pension
What Is Public Pension Income?
Public pension income refers to the taxable portion of pensions received regularly under applicable laws, including the National Pension, Government Employees Pension, Military Pension, and Private School Teachers Pension.
Not all payments are necessarily taxable simply because they come from a public pension. In general, the portion of pension payments corresponding to contributions made on or after January 1, 2002 is taxable, while portions corresponding to tax-exempt contributions may be excluded. Disability pensions and survivor pensions may be tax-exempt under applicable laws.
When You Can Omit Filing If You Have Only Public Pension Income
Pension-paying institutions withhold income tax each month from taxable public pension payments and perform year-end tax settlements. Therefore, if the following conditions are met, you generally do not need to file a final comprehensive income tax return in May of the following year.
- Your only taxable income is public pension income.
- The paying institution properly completed the year-end tax settlement for your public pension.
- You do not need to claim any omitted income deductions or tax credits.
Must You File If You Have Any Other Income?
If you have other comprehensive income subject to aggregation, such as employment income, business income, or rental income, the general rule is to combine it with your public pension income and file a return. However, merely having other income does not automatically create a filing obligation.
Tax-exempt income, retirement income, capital gains, or income for which separate taxation is permitted by law may be excluded from comprehensive income aggregation. The treatment of small amounts of other income also varies depending on whether separate taxation applies, so you must first identify the type of income.
If You Receive a Private Pension Such as Pension Savings or an IRP
Taxable Sources of Private Pension Payments
The taxation of money withdrawn from a pension account varies depending on its source.
- Pension savings and IRP contributions for which a tax credit was claimed: When received as a pension, they are taxed as pension income.
- Investment earnings in the account: When withdrawn after satisfying the pension payment requirements, they are taxed as pension income.
- Your own contributions for which no tax credit was claimed: These are tax-exempt amounts and, in principle, are not taxed again.
- Retirement benefits transferred to a pension account: Even when received as a pension, they are taxed under the retirement income taxation system.
Therefore, the total pension payment reported by a financial institution may differ from the taxable pension income used to determine whether the 15 million won private pension threshold has been exceeded.
Annual Threshold of 15 Million Won
Taxable private pension income generated from pension savings accounts, IRPs, and similar accounts is determined by combining amounts from multiple financial institutions and accounts. You do not simply add public pension payments or pension payments funded by retirement benefits when determining whether the 15 million won threshold has been exceeded.
| Annual Taxable Private Pension Income | Generally Available Taxation Options |
|---|---|
| At most 15 million won | Separate taxation at the low pension income withholding tax rate or comprehensive taxation |
| More than 15 million won | Comprehensive taxation or separate taxation at 15% |
If you choose separate taxation at 15%, the effective withholding burden, including local income tax, is generally 16.5%. If you choose comprehensive taxation, the income is combined with other comprehensive income, after which progressive tax rates, the pension income deduction, and various other deductions are applied.
Therefore, private pension income exceeding 15 million won is not necessarily subject only to comprehensive taxation. Comprehensive taxation may be more favorable if you have little other income and large deductions, while separate taxation at 15% may be more favorable if you have substantial employment, business, rental, or other income subject to high progressive tax rates.
Private Pension Withholding Tax Rates
Private pensions that satisfy the normal pension payment requirements are generally subject to the following income tax rates based on your age when receiving the pension. The rates below that include local income tax reflect an additional 10% of the income tax amount.
| Age When Receiving the Pension | Income Tax Rate | Including Local Income Tax |
|---|---|---|
| Less than age 70 | 5% | 5.5% |
| At least age 70 but less than age 80 | 4% | 4.4% |
| At least age 80 | 3% | 3.3% |
Separate rates and requirements may apply to lifetime annuity contracts or withdrawals for medical purposes. In addition, withdrawals that do not satisfy the pension payment age, enrollment period, or pension withdrawal limit may be treated as non-pension withdrawals and subject to higher rates as other income or a similar income category.
Why a Refund or Additional Payment May Be Due Even After Withholding
Tax withheld by a financial institution may be a prepaid tax rather than the final tax amount. If you choose comprehensive taxation or have other comprehensive income that must be reported, the final tax is recalculated to reflect the following items.
- Amount of other comprehensive income
- Pension income deduction
- Personal deductions and other income deductions
- Tax credits
- Tax already withheld
If the amount withheld exceeds the final tax, you receive a refund; if it is less, you must make an additional payment.
If You Receive Retirement Benefits as a Pension
An IRP may contain both personal contributions and retirement benefits, but they are classified for tax purposes according to their source.
If retirement benefits are transferred to a pension account and then received as a pension, the retirement income tax burden may be lower than if they were received immediately as a lump sum upon retirement. In general, the structure provides a partial reduction in deferred retirement income tax based on the actual period over which the pension is received.
These amounts must be distinguished from tax-deductible contributions and investment earnings included in the usual 15 million won private pension income threshold. The most accurate approach is to review the pension account statement by source or the withholding tax receipt provided by the financial institution.
If You Receive Payments from Savings Insurance in Annuity Form
Tax-Exemption Requirements Matter More Than the Product Name
Even if products such as general annuity insurance, variable annuity insurance, and immediate annuity insurance include the word “annuity” in their names, they may not be pension accounts like pension savings accounts under tax law. Whether these products are taxable depends on whether they satisfy the savings insurance tax-exemption requirements applicable to insurance gains.
- Tax-exemption requirements met: No income tax is imposed on the insurance gains.
- Tax-exemption requirements not met: The insurance gains may be taxed as interest income.
Tax-exemption requirements vary according to the contract maintenance period, payment method, premium limits, lifetime annuity payment conditions, and other factors. Not all savings insurance is tax-exempt merely because it has been maintained for at least 10 years.
Interest Income Is Not the Entire Pension Payment
The taxable amount is generally not the premiums paid but the insurance gain calculated by subtracting the paid premiums from the insurance proceeds or surrender value. For contracts that make payments in annuity installments, the insurer may calculate the taxable interest portion for each payment.
Financial Income Threshold of 20 Million Won
Taxable insurance gains are combined with other interest income, such as deposit interest, and dividend income.
- If total annual interest and dividend income is at most 20 million won, taxation is generally completed through withholding.
- If the annual total is more than 20 million won, all financial income must, in principle, be combined with other comprehensive income and reported.
The 20 million won threshold is determined, in principle, based on financial income before tax rather than the amount deposited after tax. Tax-exempt financial income and certain separately taxed financial income may be excluded when determining whether comprehensive taxation of financial income applies.
Documents to Review Before Filing
Preparing the following documents can help reduce duplication or omissions when aggregating pension income.
- Pension income withholding tax receipt from the public pension-paying institution
- Pension income withholding tax receipts from each financial institution holding pension savings accounts or IRPs
- Pension account details by source of funds
- Retirement income withholding tax receipt
- Savings insurance tax-exemption status and insurance gain statement
- Interest and dividend income payment statements
- Documents for other comprehensive income, including employment, business, rental, and other income
Review payment statements and income records on the National Tax Service’s Hometax system, and verify that data from all financial institutions has been included. Even if you did not receive a filing notice, you may still be required to file if you meet the statutory filing requirements.
Practical Decision-Making Process
- Classify the money received as a public pension, pension account payment, retirement benefit-funded payment, or savings insurance payment.
- Check the taxable amount of each item rather than the total amount received.
- For private pensions, combine taxable pension income from multiple accounts and apply the 15 million won threshold.
- Combine insurance gains with other interest and dividend income and apply the 20 million won threshold.
- Check whether you have comprehensive income subject to aggregation, such as employment, business, or rental income.
- Compare the estimated tax under the available comprehensive taxation and separate taxation options.
- Determine whether to file in May of the following year and account for tax already withheld.
Points to Note
Pension taxation rules may be revised, and even within the same IRP, taxation varies depending on the source of the funds. Do not determine your filing obligation solely based on the fact that you “received it as a pension” or on the account’s total deposits. You must review the type of income and taxable amount shown on the withholding tax receipt.
FAQ
Do I need to file a comprehensive income tax return if I only receive the National Pension?
If you have no other comprehensive income to combine with the National Pension and the National Pension Service has properly completed your year-end tax settlement, you may generally omit filing a final return. However, you may need to file a return if you want to claim additional deductions that were omitted or if the year-end tax settlement was not completed.
Do I always have to file a return if I have a small amount of other income in addition to public pension income?
No. It depends on whether the other income is tax-exempt, separately taxed, or subject to aggregation as comprehensive income. In principle, if you have income subject to aggregation, such as employment, business, or rental income, you must file it together with your public pension income. However, retirement income or income designated by law as separately taxable may not need to be aggregated.
If my private pension income exceeds KRW 15 million, is it necessarily subject to comprehensive taxation?
Comprehensive taxation is not necessarily the only option. Under the current general rules, if taxable private pension income exceeds KRW 15 million per year, you may choose either to aggregate it with other comprehensive income or to have it separately taxed at 15%. Including local income tax, the separate taxation burden is generally 16.5%.
Is the National Pension included in the KRW 15 million threshold for private pensions?
Public pensions such as the National Pension are not included in the KRW 15 million threshold for private pensions. This threshold is mainly used when determining taxable private pension income arising from tax-deductible contributions to pension savings accounts and IRPs, as well as investment earnings.
Is a retirement benefit received from an IRP included in the KRW 15 million private pension threshold?
The portion funded by retirement benefits is subject to the retirement income taxation system and is therefore treated separately from the amount used to determine the general KRW 15 million private pension threshold. Because a single IRP may contain retirement benefits, personal contributions, and investment earnings, you should check the financial institution's breakdown by funding source.
Are all amounts received from a pension insurance policy treated as interest income?
No. If a savings-type insurance policy meets the requirements for tax exemption, the insurance gain may be tax-exempt. Even if the requirements are not met, generally it is not the entire principal paid in but the insurance gain—the insurance payout or refund minus the premiums paid—that is taxed as interest income.
What types of income are included in the KRW 20 million financial income threshold?
Taxable deposit interest, bond interest, insurance gains, dividend income, and similar income are aggregated. In principle, the pre-tax amount, rather than the net amount deposited after tax, is used, while tax-exempt financial income and certain separately taxed financial income may be excluded.
Can I still owe additional tax after filing a comprehensive income tax return even if tax was already withheld from my pension?
Yes. Withholding tax may be a tax prepayment. If the final tax calculated after aggregating your other comprehensive income is greater than the amount withheld, you must pay the difference. If the final tax after applying deductions and other adjustments is lower, you may receive a refund.
If I receive pensions from multiple financial institutions, is the KRW 15 million threshold applied separately to each one?
No. The KRW 15 million threshold is not applied separately by financial institution or account; it is determined by aggregating taxable private pension income for the applicable year. However, retirement-benefit funding, principal for which no tax credit was claimed, and similar amounts must be classified separately.
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