Origins
Pay-as-you-go withholding became mainstream during World War II. The U.S. Current Tax Payment Act of 1943 put wage withholding in place to raise war revenue quickly and avoid millions of taxpayers facing a lump-sum bill; a young Treasury economist, Milton Friedman, helped design it and later regretted how much it eased government growth. Britain followed with PAYE in 1944. Research explains its power: income that a third party withholds or reports is almost never underreported (Slemrod, 2007; Kleven et al., 2011).
Rates in Korea
Korean payers withhold on wages, business income, "other" income, interest, dividends and severance. Wages use a monthly simplified table and are trued up in February's year-end settlement.
| Income | National rate | With local tax |
|---|---|---|
| Freelance/business services | 3% | 3.3% |
| Other income (lectures, manuscripts, after expenses) | 20% | 22% |
| Interest (general) | 14% | 15.4% |
| Daily wages | 6% on pay above KRW 150,000/day, then 55% credit | about 2.97% of the excess |
Local income tax adds 10% of the national tax, which is why Koreans talk about "3.3%" and "15.4%".
Payer duties and recipient checks
- Remit by the 10th of the following month and file a withholding report; employers with 20 or fewer staff can apply for semiannual filing.
- Submit payment statements on time or face penalties.
- Financial income above KRW 20 million a year is taxed comprehensively; small amounts of other income may stay final.
- Over-withheld? A refund comes through settlement. Many people leave it that way out of inertia (Jones, 2012).
FAQ
- Why do Korean clients deduct 3.3%?
- It is 3% national income tax plus 0.3% local tax, settled in the next May's return.
- Can I get withheld tax back?
- Yes, if more was withheld than you owe, the year-end settlement or May return refunds it.
Sources reviewed: 2026-11-09
References
- 소득세법 제127조~제159조 (원천징수). Korean Income Tax Act provisions on withholding: covered income, rates, deadlines and payment statements.
- 국세청. (n.d.). 원천징수 안내. National Tax Service guidance on simplified withholding tables, daily workers and semiannual filing.
- 대한민국 정책브리핑. (n.d.). 헷갈리기 쉬운 「원천징수」 세금 상식. Government explainer on basic withholding rates and filing deadlines in Korea.
- Slemrod, J. (2007). Cheating ourselves: The economics of tax evasion. Journal of Economic Perspectives, 21(1), 25–48. Shows that income subject to withholding and third-party reporting is far less likely to be underreported.
- Kleven, H. J., Knudsen, M. B., Kreiner, C. T., Pedersen, S., & Saez, E. (2011). Unwilling or unable to cheat? Evidence from a tax audit experiment in Denmark. Econometrica, 79(3), 651–692. Danish audit experiment: evasion is near zero for third-party-reported income.
- Jones, D. (2012). Inertia and overwithholding: Explaining the prevalence of income tax refunds. American Economic Journal: Economic Policy, 4(1), 158–185. Explains why many taxpayers over-withhold and receive refunds: inertia in withholding choices.
- Bagchi, S., & Dušek, L. (2021). The effects of introducing withholding and third-party reporting on tax collections: Evidence from the U.S. state personal income tax. Journal of Public Economics, 204, 104537. Measures how much state income-tax revenue rose after U.S. states introduced withholding.