Korea's Comprehensive Taxation on Financial Income

Normally, when you put money into a savings account and earn interest, the bank takes the tax out for you. This is called withholding (the payer takes the tax out ahead of time). The rate is 14% income tax plus 1.4% local income tax, for 15.4% in total. While your interest and dividends are small, this is the only tax you pay, and you don't have to report anything separately to the National Tax Service.

But the moment all the interest and dividends you receive in a year add up to more than 20 million won, the rules change completely. From then on, your financial income is no longer kept apart. It goes into the same basket as all your other income. This is exactly the point where financial income becomes subject to comprehensive taxation.

For example, say you earned 25 million won in interest in one year. Up to the 20 million won line, only the usual 15.4% is taken, as always. But the 5 million won above the line gets bundled together with the salary you earned from working or the business income you earned from running a shop.

Korea's income tax uses progressive rates (the rate climbs from 6% up to 45% as your income moves into higher brackets), so the more you earn, the higher the rate applied. If someone with a big salary adds financial income on top, their income jumps up into a higher bracket and meets a higher rate.

For someone whose salary already puts them close to the top bracket, adding just 5 million won of financial income could mean paying a heavy tax of over 40% on that 5 million won. It's a mechanism meant to tax income fairly no matter what kind it is, especially for high earners whose money makes more money.

There's also a hidden catch. When financial income grows, not just your tax but your National Health Insurance premium can also rise sharply. Health insurance uses a different cutoff than the tax. Once financial income goes over 10 million won a year, all of it counts toward the income used to calculate premiums. In particular, a retiree who was registered as a dependent (someone who gets coverage without paying premiums) under a working family member can lose that status the moment total income, including pensions, goes over 20 million won a year. They then become a regional subscriber and may have to pay premiums themselves.

More precisely, the "financial income" in comprehensive taxation does not include every profit from financial transactions. It adds up only two kinds: interest income and dividend income.

Many people get confused about this: gains from trading domestic stocks (profit from buying low and selling high) are not counted when calculating the 20 million won of financial income. Stock dividends, fund distributions, and bank deposit and savings interest are what get added up. Income from tax-free and separately taxed products is left out. And starting in 2026, dividends from high-dividend companies that meet certain requirements can also be taxed separately by choice and left out of the total.

Also, going over 20 million won doesn't mean the high comprehensive rates apply to the entire 20 million won of financial income. The first 20 million won is still taxed at the original rate (14% income tax, 15.4% with local income tax), and only the amount above 20 million won is added to your other income and taxed again. This is a safety net that keeps the tax burden from becoming excessive.