Severance Income Tax Calculator

Overview

The Severance Income Tax Calculator computes Korean severance (retirement) income tax, local income tax, and the expected net payout from your severance pay and years of service, following the calculation structure of Article 48 of the Income Tax Act: service-year deduction → annualized (converted) salary → converted-salary deduction → tax base → year-spreading. Because severance pay compensates many years of work in one lump sum, Korea taxes it on an annualized basis, which makes the effective rate far lower than ordinary earned income tax. The calculator reflects the expanded service-year deduction applied to retirements on or after January 1, 2023.

Formula

① Service-year deduction: ≤5 yrs KRW 1M × years / 6–10 yrs 5M + 2M × (years − 5) / 11–20 yrs 15M + 2.5M × (years − 10) / >20 yrs 40M + 3M × (years − 20)
② Converted salary = (severance pay − service-year deduction) × 12 ÷ years
③ Converted-salary deduction: ≤8M full amount / ≤70M 8M + 60% of excess / ≤100M 45.2M + 55% / ≤300M 61.7M + 45% / >300M 151.7M + 35%
④ Tax base = converted salary − converted-salary deduction
⑤ Converted tax = tax base × progressive rates (6–45%)
⑥ Final tax = converted tax ÷ 12 × years; local income tax = 10% of final tax

Example: KRW 50M severance, 10 years of service → deduction 15M → converted salary 42M → tax base 13.6M → income tax KRW 680,000 + local tax 68,000 = KRW 748,000 total

How to Use

1. 1Enter your gross severance pay, excluding tax-exempt portions such as disability compensation.
2. 2Enter your service period in years and months; periods under one year are rounded up to a full year by law.
3. 3Check the total tax (income + local) and the expected net payout with the effective rate.
4. 4Review the step-by-step breakdown: service-year deduction, converted salary, and tax base.

Examples

Background

Korean severance income is taxed under a dedicated scheme in Article 48 of the Income Tax Act. Applying ordinary progressive rates to decades of deferred compensation paid at once would be punitive, so the law annualizes the amount by dividing by years of service, applies the progressive rates to that one-year equivalent, then multiplies back — the 'yeonbun-yeonseung' (spread-and-multiply) method. The service-year deduction was substantially expanded for retirements from 2023 (e.g., KRW 4M → 15M at 10 years), so long-tenured employees with payouts under KRW 100M often face effective rates below 5%.

Tips

• ✔For the same payout, longer service means lower tax due to both the larger deduction and stronger annualization effect.
• ✔Rolling severance pay into an IRP account defers the tax; receiving it as a pension after age 55 cuts the deferred tax by 30–40%.
• ✔The employer withholds the tax at source, so no separate filing is normally required.
• ✔Service periods are rounded up: 10 years and 1 month counts as 11 years, reducing the tax.

FAQ