Life in Korea: getting your taxes done in Korea and at home
Author's note: I am not a professional tax preparer, accountant, or IRS worker. While I've spent hours researching this post from official government sources, seek the professional help if you need it. Also consider using a program like TurboTax to submit the paperwork electronically (but see below for an important detail!)
The good news on filing taxes in Korea is that it's probably easier than in your home country, and your school is doing a lot of the work on your behalf. If you've looked at your paycheck, you've noticed Korean tax being taken out of your paycheck, but your home country may want some taxes as well. Why? For the privilege of calling it your home country, of course. The good news is that there are over 2,500 double taxation treaties across the world; 2,500 agreements that essentially say 'what you make while living in another country won't be taxed by your home country as well'. While many of these agreements have the same goal (avoiding double tax on single income), the details are often different. If this is your first year in Korea and you haven't been here the entire calendar year / tax year, you'll need to work with your employers back home to get the paperwork / online filing done.
Two dates to keep in mind: February and May 31st. February is when your employer is supposed to give you a 'Receipt for Wage & Salary Income Taxes Withholding' form - in other words, how much money has the school taken out of your paycheck to pay for taxes? Get it (ask for it specifically if needed) and file it away since it proves the school collected money from you to pay taxes. If the Korean National Tax Service (NTS) accuses you of not paying taxes, showing them that form will help them turn their attention to the school (who collected money to pay taxes, but never actually paid - hmmm...).
May 31st is the deadline for filing tax forms in Korea - the April 15th to most Americans. Korea's tax year runs from May 31st to May 1st, not the calendar year. Again, your school may do this on your behalf - but better to ask and be sure than not and be sorry.
The U.S. has a system in place that excludes your foreign income from U.S. tax, up to a certain dollar amount. For the 2009 tax year, that amount is $91,400 - if you're teaching English in Korea and you're making more than that, way to go. Please comment with your secret, and the meaning of life if you've figured that out as well. For the rest of us, that means you will not owe the U.S. any tax money from your foreign income, but you still have to file a U.S. tax form. Start with form 2555-EZ (official IRS instructions here, while the actual tax form is here (PDF). A couple of the numbers will go on your 1040 form - or use Turbotax's online service and be done with it. If using an online tax preparation service, use a U.S. address, however - it won't let you e-file with a foreign address!
I'll apologize for not being intimately familiar with the British, Irish, Australian, New Zealand, Canadian, or South African taxation systems - whatever country you're a resident of, you probably know about that country's tax rules than I do.
England has a system that sounds fairly similar to the U.S. - BritishExpats.com has a page on the subject. They have a double-taxation treaty with Korea - see the details here (PDF format) if you're so inclined.
Ireland's rule sounds fairly simple: if you're in Ireland for 183 days or more in one tax year, or more than 280 days over two tax years, you're a resident. A double-taxation treaty between Ireland and Korea exists here as well - read the whole thing online if you want.
South Africans not residing in South Africa will only pay their income from South Africa. Simple enough - see this page for more information.
Canada's rule sounds a bit complicated according to this page, but it seems to be similar to other countries in that it will only tax monies connected to Canada in some way, not money made elsewhere.
Australia's rules sound far-reaching, but are similar to other countries (source):
- Income earned by a branch or permanent establishment (usually a physical presence for more than 6 months in the fiscal year is taken as a permanent establishment) located in Australia and owned or part owned by the non-resident.
- Income earned from a contract accepted by an Australian agent authorised to accept contracts on behalf of non-residents.
- Income earned from contracts signed in Australia, or to be performed there.
- Income from contracts in which the implied or express law is Australian, or in which the currency of payment is Australian dollars.
- Income from contracts whereby one or both of the parties resides in Australia.
- Rental income from Australian property paid to a non-resident.
New Zealand has a double-taxation treaty with Korea (see here for details) - from what this Inland Revenue page had to say, it sounds similar to other countries. It doesn't seem to recognize the average English teacher's situation of leaving for a year (or more), then coming back to the country.
In short, if the money you made has some connection with your home country, you may have to pay some tax on it. If made in Korea, expect to pay tax in Korea.
Just like in most countries, there are plenty of exemptions for your Korean income. Again, the school / company you currently work for should (should) handle most to all of the details. They may ask you if have any special deductions (medical expenses, educational expenses, etc.) - these reduce your taxable income and potentially increase any refund that's due. A list from the excellent korea4expats.com:
- Deductions for all taxpayers [living in Korea] include:
o Automobile allowance (up to about W200,000/month)
o Meal allowance (up to W100,000/month)
o Insurance premium paid by employer on behalf of employee
(up to W700,000/year subject to conditions)
o Medical expenses can also be deducted – need submit receipts
o Taxpayers receive a rebate of payments made via credit card
Also applies to designated cash receipts
o Deductions on 15% to 100% of charitable donations
(applies to Korean charities and to a limited number of foreign ones)
o Education expenses:
100% taxpayer's own graduate school expenses,
W7million/year per person for university/college expenses
W2million/year per child for kindergarten/elementary/middle/high school
o Deduction of W1million for each: taxpayer, spouse and dependents
20y-o-a or younger)
o Deductions up to W1.5million for dependents over 65
o Deductions up to W2million for disabled dependent
o Additional deductions for large households:
W0.5million 2 children/W1million for 3+
For more information, check out Korea's National Tax Service fairly informative website at http://nts.go.kr/eng/. A helpline has been set up to assist foreigners - call 02-397-1440 or 02-2076-5711 for that. Good reasons to call include checking to ensure your paperwork has been filed / received, or to get information if your school hasn't been doing their job. You can also e-mail them at email@example.com or visit any of the district tax offices. Since July 2008, at least 45 of the district tax offices have a 'Foreign Taxpayer Desk' for questions and answers. These include every district (gu) in Seoul, 10 in Gyeonggi-do, 2 in Daejeon, Gwangju, and Daegu each, and 5 in Busan.
If there are any specific questions floating around, comment away and I'll try to answer them.
© Chris Backe - 2010
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