The Housing Subscription Savings Deduction: How Much Tax It Actually Removes

All Three Conditions Have to Be Met

The scheme is set by article 87 of the Restriction of Special Taxation Act. Holding a subscription account does not deduct anything automatically; it applies only in a year in which every condition is met.

Of the three, the householder requirement is the one that trips people up most often in practice. Living with parents as a household member means no deduction no matter how much goes into the account. Checking who is registered as householder on the resident registration comes first. Separating the household meets the requirement from the following tax period.

The income requirement runs on total salary. That is pre-tax pay less non-taxable pay, and it is the figure before the earned income deduction. Items treated as non-taxable, such as meal allowances and a car allowance, come out, so it lands below the number on the employment contract.

Not being the householder is fine if you are the householder's spouse. Where the spouse is the householder and you hold the subscription account, the deduction applies. The whole household has to own no home, though, so a home in the spouse's name fails the requirement.

Home ownership is judged over the tax period. Acquire a home that year and the contributions for that tax period are not deducted.

The Tax Actually Removed

An income deduction does not cut the tax by its own amount. It reduces taxable income, the base on which tax is assessed, and the tax falls by that reduction multiplied by the rate.

Pay in KRW 3 million a year and the deduction is KRW 1.2 million. That figure multiplied by your own rate is the tax actually removed.

Taxable income is total salary less the earned income deduction and the various income deductions. Since the requirement caps total salary at KRW 70 million, most cases fall in the three bands above.

The same KRW 3 million removes more tax at a higher income. An income deduction works by multiplying by the rate, so it does more for someone on a higher rate. It does not keep growing indefinitely, though, since total salary above KRW 70 million falls outside the requirement.

Converted to monthly contributions

KRW 3 million a year is KRW 250,000 a month. Falling short of the limit still deducts what was paid in.

Paying in more than KRW 250,000 a month still caps the eligible amount at KRW 3 million a year. The excess counts toward subscription points and deposit requirements but not toward the income deduction.

Closing Early Removes That Year's Deduction

The article carries a proviso. Close the account during the tax period for a reason other than the prescribed ones, such as winning an allocation, and the amount paid in during that tax period is not deducted.

Pay in KRW 250,000 a month from the start of the year and close in November, and the whole of that year's contributions falls out of scope. That is KRW 2.75 million paid in with a deduction of zero. A subscription account also improves your ranking the longer it is held, so money that may be needed soon belongs elsewhere.

Where there is any chance of needing the money, splitting it into something easily withdrawn beats filling the limit here. A maximum annual saving of KRW 316,800 does not justify tying up funds.

Closing on winning an allocation is a recognized reason, so that year's contributions are still deducted. The account exists for the subscription in the first place, so closing on a win counts as a normal ending.

Pension Savings Are Calculated Differently

The subscription account is an income deduction; 연금저축 (pension savings) is a tax credit. The names look alike, but the calculation differs, so the same contribution returns a different amount.

On the same KRW 3 million, pension savings does more. An income deduction applies the rate only to 40% of the contribution, while a tax credit applies the credit rate to the whole of it. How the two methods differ is set out in income deductions and tax credits.

That said, a subscription account is not a product taken out for the tax. Subscription ranking and points are its purpose, and the income deduction comes attached to that.

Interest on a subscription account carries the same interest income tax of 15.4% as any other deposit. Receiving an income deduction and paying tax on interest are separate things. The deduction applies to the principal paid in, and the tax comes out of the interest that principal produces.

The deduction is calculated on amounts paid in by December 31 of that year. Paying it all in during December still counts toward that year's deduction, up to that year's KRW 3 million limit.

Frequently Asked Questions