Pay rises, tax bites: Korean workers call for income tax reform

For Lee, a 43-year-old employee at an IT company in Seoul’s Geumcheon District, a bigger paycheck each year has brought little sense of greater financial security.

A pay raise initially feels rewarding, he said. But that feeling fades when he checks his pay statement. Taxes and social insurance contributions have also risen, leaving him with less additional take-home pay than expected.

“My salary goes up every year, but things still feel tight after paying loan interest, living expenses and my child’s education costs,” Lee said. “A pay raise that merely keeps pace with inflation doesn’t mean we’re better off. Tax thresholds should also reflect rising prices.”

His frustration reflects growing calls to overhaul Korea’s income tax system as nominal wage increases fail to deliver greater purchasing power.

Korea has eight income tax brackets, with rates ranging from 6 percent to 45 percent on taxable income after deductions. The portion above 50 million won ($38,000) and up to 88 million won is taxed at 24 percent, while the portion above 88 million won and up to 150 million won faces a 35 percent rate.

The top rate applies to income exceeding 1 billion won. Including local income tax, the highest marginal rate reaches 49.5 percent.

Entering a higher bracket does not subject a worker’s entire income to the higher rate. But fixed thresholds can push inflation-driven wage increases into higher brackets, increasing tax burdens even when purchasing power remains unchanged.

Known as “bracket creep,” this is also described as a “stealth tax increase,” as workers pay more without the government formally raising rates.

Data from Rep. Moon Jin-seog of the ruling Democratic Party of Korea show that average annual gross pay rose 31.7 percent to 49 million won in 2024 from 37.2 million won in 2015, while average final income tax liability climbed 78.9 percent to 3.4 million won from 1.9 million won.

Real personal disposable income per capita increased 20.1 percent over the same period.

The burden is leading to calls to align tax brackets with prices and wages, leaving households more money for housing, education and everyday expenses.

The government remains cautious, warning that broad adjustments could disproportionately benefit higher earners.

“Adjusting the tax brackets all at once would concentrate more benefits on high-income earners than on low-income earners,” Finance Minister Lee Hyoung-il said during a parliamentary audit last month.

Cheong Wa Dae has launched a task force to ease financial pressures on salaried workers through expanded tax credits and lower transportation, education, child care and marriage costs.

“The lives of salaried workers are central to people’s livelihoods,” presidential chief of staff Lim Kwang-hyun said, pledging continued efforts to cut living costs and increase disposable income.

The measures outlined so far, however, do not appear to include changes to income tax brackets or rates.

Moon submitted a bill last month to raise certain thresholds and lower rates. It would expand the lowest bracket’s ceiling to 16 million won from 14 million won and halve its rate to 3 percent.

His office estimates that tax before credits on taxable income of 50 million won would fall to 3.88 million won from 6.24 million won, a 37.8 percent reduction.

Kim Dae-jong, a business professor at Sejong University, warned that excessive income taxes could weaken work incentives and drive skilled talent overseas.

“Talent mobility can shape a country’s future, particularly in high-tech industries that rely on highly paid professionals,” he wrote in a column. “Income taxes need to be lowered to reasonable levels so young people can stay in Korea to pursue their dreams.”