Mid-year hires and leavers: year-end tax settlement runs twice

If you change jobs in Korea during the year, or your company hires or loses staff mid-year, year-end tax settlement (연말정산), the employer's annual recalculation of income tax on wages, runs twice. This guide is for foreign employees, foreign founders and managers, and payroll staff. In short: the old employer settles the leaver and issues a withholding receipt; the new employer combines both incomes before February pay; otherwise the employee files a tax return in May.

Two settlements when someone changes jobs

Article 137(1) of the Income Tax Act (소득세법) sets two settlement points. For current employees, the employer settles when paying wages for February of the following year. For a leaver, it settles when paying wages for the month of leaving, covering January 1 to the leaving date.

A company with both leavers and new hires in the same year plays both roles, previous employer and new employer, each with its own duties and deadlines.

When an employee leaves: final-month settlement and receipt

A leaver's settlement uses the year-end formula. If you settle without the employee's deduction documents, almost all deductions drop out. Article 137(3) says that for an employee who has not submitted the deduction claim form (공제신고서), only the employee's own basic deduction and the standard tax credit apply.

The bracketed text in Article 140(1) says a leaver submits the form before receiving wages for the month of leaving. So ask for it before the last payday.

Steps when someone leaves:

• Before the final payday, ask the employee for the deduction claim form.
• Check total wages paid from January to the leaving date.
• Check the total monthly tax already withheld under the simplified tax table (간이세액).
• Confirm the refund or additional tax from the settlement.
• Show the result on the final month's pay statement.
• Include it in the withholding tax return due on the 10th of the next month.
• Issue the withholding receipt by the end of the next month.
• Send it to an address the person can still use after leaving, such as a personal email, not the company email.

Under the current proviso to Article 143(1), the receipt deadline is the end of the month after the month that contains the payday for the wages of the month of leaving. Example: an employee leaves on October 31, and October wages are paid on November 10. The payday falls in November, so the deadline is December 31.

If the employee left through a recommended resignation, see also the separation certificate guide.

When an employee joins: add the previous employer's income

Under Article 138(1), when a person who left a job during the tax year joins a new employer and submits the deduction claim form including income from the previous workplace (종전 근무지), the new employer settles the two incomes together. This covers wages received from January up to the month of leaving the previous job.

Combining needs the previous employer's withholding receipt, so request it with the onboarding documents and avoid chasing it in January.

• Add the previous employer's withholding receipt to the onboarding document list.
• At hiring, check whether the person worked anywhere since January of the same year.
• If the person changed jobs two or more times in the year, collect receipts from every previous employer (Article 138(2)).
• Cross-check the previous employer's total pay and tax already paid.
• Confirm that the deduction claim form includes the previous employer's income.
• Tell new hires separately the cut-off date for the settlement before February pay.

An employee without the receipt is settled on the new employer's income only. If the employee cannot reach the old company, one route remains: after the deadline for the wage income payment statement (March 10 of the following year), look up the payment statement on Hometax (홈택스), the National Tax Service website. That is too late for the company's settlement, so it moves to the May return.

If you hire foreign staff, see also Foreign employees and the 19% flat tax rate.

If the incomes are not combined: the May tax return

A person whose only income is wages normally does not have to file a final return for global income tax (종합소득세) (Article 73(1), item 1). Article 73(2), however, does not apply this exemption to a person who received wages from two or more payers. The only exception is when the combined settlement under Article 138 left no further tax to pay.

So an employee whose previous income was not combined must file a final global income tax return from May 1 to May 31 of the following year (Article 70(1)). When the company hands over the February settlement result, it helps to tell the employee this. Adding the two incomes applies the progressive tax rates to the total again, so extra tax may be due.

Working for two employers at the same time

Article 137-2 applies instead when someone earns wages from two companies in the same period rather than changing jobs. A main workplace (주된 근무지) and a secondary workplace (종된 근무지) are designated. If the secondary workplace's withholding receipt is submitted to the main workplace before February pay, the main workplace settles both together. On request, the secondary workplace must issue the receipt without delay (Article 143(2)). If neither combination happens, the May final return under Article 73(2) applies.

What remains after the February settlement

• If the additional tax exceeds ₩100,000, it can be collected in installments from February to April wages (Article 137(4)).
• If the tax to collect is larger than that month's wages, the rest is collected from the next month's wages (Article 139).
• Submit the wage income payment statement by March 10 of the following year (Article 164(1)).
• If the business closes or is dissolved, that deadline moves up to the end of the month after next, counted from the month containing the closure date or similar date (bracketed text in the same paragraph).
• Workplaces approved for half-yearly payment pay withholding tax by the 10th of the month after the last month of the half-year (Article 128(2)). See Half-yearly payment of withholding tax.

Checklist

• Leaver: settle in the final month's pay, January to the leaving date.
• No deduction claim form: only the basic deduction and the standard tax credit.
• Leaver's receipt: end of the month after the month of the final payday.
• New hire: get the previous employer's receipt before February pay, then combine.
• Not combined: the employee files in May of the following year.
• Payment statement: March 10 of the following year.