Starting next year, dual-income households with a combined annual income of up to 52 million won ($34,900) will be eligible for the earned income tax credit, and the monthly rent tax deduction ceiling will rise from 10 million to 12 million won, under the government's 2026 tax reform package. The income threshold for claiming deductions on a spouse or dependent will also be raised to 3 million won.
The Ministry of Economy and Finance announced the reform plan Monday.
The government will expand income eligibility limits and payment amounts under the Earned Income Tax Credit (EITC) to provide stronger support for low-income earners. Annual income ceilings will rise by 4 million won for single-person households to 26 million won, by 5 million won for single-earner households to 37 million won, and by 8 million won for dual-income households to 52 million won — adjustments made in line with next year's minimum wage of 10,700 won per hour.
Maximum benefit payments will increase by roughly 9 percent: by 150,000 won to 1.8 million won for single-person households, by 250,000 won to 3.1 million won for single-earner households, and by 300,000 won to 3.6 million won for dual-income households. The increases reflect cumulative inflation of about 8 percent since the last revision in 2022.
The "flat zone" for dual-income households — the income band within which recipients receive the maximum benefit regardless of earnings growth — will be widened from the 8 million–17 million won range to 8 million–18 million won.
The change is designed to eliminate a "marriage penalty" under which an unmarried couple each earning 9 million won annually could together receive 3.3 million won in credits, only to see that amount reduced to 3.18 million won upon marriage when they are reclassified as a dual-income household.
The government estimates the reforms will extend EITC eligibility to about 4.89 million households — an increase of 730,000 — with total payouts projected to rise by 1.2 trillion won to 5.9 trillion won.
The government will also raise the monthly rent tax deduction ceiling. Workers earning a total salary of 80 million won or less currently receive a tax credit equal to 15 or 17 percent of their annual rent payments, up to a ceiling of 10 million won. To ease the housing cost burden, that ceiling will increase by 2 million won to 12 million won per year.
Under the current system, a houseless worker earning a total salary of 50 million won and paying 1 million won per month in rent receives a deduction of 1.7 million won. Once the new system takes effect, that deduction will rise by 340,000 won to 2.04 million won.
The income eligibility criteria for spouses and dependents — a key factor in determining whether year-end tax settlement results in a bonus or an additional tax bill — will also be relaxed.
The income threshold for the basic deduction of 1.5 million won per person for spouses and dependents in comprehensive income tax filings will rise from 1 million won (or a total salary of 5 million won for those with only employment income) to 3 million won (or a total salary of 7.5 million won). The adjustment accounts for cumulative price increases.
For example, a spouse earning a monthly salary of 500,000 won — a total annual salary of 6 million won — will now qualify for the basic deduction.
The government will make the income deduction for housing subscription accounts permanent, ending a cycle in which the measure repeatedly faced possible expiration. The move is intended to support housing access for households without a home.
Special tax treatment for agricultural and fishery cooperative corporations and farming companies — covering corporate tax, dividend income tax, capital gains tax and value-added tax — will also be made permanent, as will the full capital gains tax exemption on livestock and fishery land held for eight years or more. The indirect tax exemption on petroleum products used in agriculture, forestry and fisheries will be extended by three years through the end of 2029.
When a person with a disability places gifted assets into a trust, the ceiling on the amount excluded from gift tax assessment will be raised from 500 million won to 1 billion won.
The withholding tax burden on delivery riders will also be eased. Income from personal services — earned by individuals providing services independently without physical facilities — is currently withheld at 3 percent before comprehensive income tax filing; that rate will be cut to 2 percent.
However, the existing rates will be maintained for foreign professional athletes, who are subject to a 20 percent rate, and for insurance agents whose tax liability is settled through year-end adjustments.
The preferential value-added tax deemed purchase credit for restaurants will be extended through 2028.
When tax-exempt agricultural products are used as raw materials in VAT-liable production, an input tax credit will be assumed and applied.
Restaurants with annual sales of 400 million won or less have been receiving a preferential credit rate of 9/109 instead of the standard 8/108 through this year; that benefit will be extended by two years to support small business owners.
The medical expense, education expense and monthly rent tax credit provisions for diligent business operators and those subject to diligent filing verification will be extended by three years, in support of the self-employed.
To stabilize housing for lower-income residents, the special non-taxation provision for small-scale housing in the deemed rental income tax calculation on jeonse deposits will be extended by three years.
To ease fuel costs for taxi operators, the excise tax reduction on liquefied petroleum gas will also be extended by three years.
Special provisions — including seizure deferrals — for small and medium-sized enterprise owners seeking to rebuild after debt restructuring will be extended by three years through 2029. Enforcement will be tightened to prevent businesses from stockpiling goods subject to temporary tariff reductions under the quota tariff system and reselling them later.
The deadline for filing import declarations will be shortened from 30 days to 20 days after goods enter a bonded zone, and the cap on the surcharge for late filings will be raised from 5 million won to 10 million won.
oskymoon@heraldcorp.com
