A freelancer earning 45 million won ($32,000) a year will take home about 500,000 won more annually under the government's plan to cut the withholding tax rate for freelancers and workers in special employment such as delivery riders, parcel couriers, golf caddies and broadcast writers — the first change in 28 years.
From 3.3% to 2.2% After 28 Years: How Much Less Tax?
The National Tax Service said on the 1st that it held a meeting with groups representing personal service income earners at the National Assembly Members' Office Building in Yeouido, Seoul, to discuss tax support measures including the withholding rate cut. It was the first joint meeting the tax agency and the National Assembly have held for personal service income earners.
About 4 million personal service income earners — parcel couriers, delivery riders, substitute drivers, golf caddies and broadcast writers — currently pay 3.3% of their income upfront, consisting of 3% income tax plus local income tax. The rate was raised from 1% in 1998 to curb tax evasion by high-earning freelancers and has remained unchanged for 28 years.
In the tax code revision announced in July, the government decided to lower the income tax withholding rate to 2% from 3%. Including local income tax, the effective withholding rate falls to 2.2% from 3.3%. The change is set to take effect next year if the related bill clears the National Assembly.
For a single-person household earning 3.8 million won a month, or about 45 million won a year, annual withholding would fall to 990,000 won from the current 1.485 million won, a reduction of 495,000 won. That amounts to roughly a one-third cut in the tax deducted from monthly income in advance.
The final income tax owed, however, does not fall by the same amount. Paying less upfront leaves more cash on hand now, but it also means smaller refunds at the following year's comprehensive income tax filing, or additional payments depending on income levels.
Lower Bar for Benefits, Plus 163.5 Billion Won in Unclaimed Refunds
The government is also moving to ease business registration requirements so that freelancers and workers in special employment can receive earned income and child tax credits.
Currently, service providers who are paid directly by consumers — such as substitute drivers, golf caddies and caregivers — must complete business registration by Dec. 31 of the previous year to qualify for the credits. The National Tax Service has asked the Ministry of Finance and Economy to revise the enforcement decree of the Restriction of Special Taxation Act to push that deadline back by about eight months, to the date the credits are determined. The agency aims to begin explaining the change in the first half of next year.
The tax agency is also notifying personal service income earners who have not claimed refunds. Since the 1st of last month, it has been informing 820,000 people — personal service income earners as well as those with wage, pension and other income who did not file comprehensive income tax returns for the 2021 through 2025 tax years — about a combined 163.5 billion won in refunds. Claims can be filed through the Hometax or Sontax systems or by automated phone service without paying filing agency fees.
The scope for using income data held by the tax agency is also widening. Since 2021, the agency has provided such data to bodies including the Korea Workers' Compensation & Welfare Service, helping 79,000 people enroll in additional employment insurance coverage. Since September last year, freelancers adjusting their health insurance premiums have no longer been required to submit a certificate of contract termination.
The government is also easing the burden of unpaid taxes on small-scale personal service income earners. Starting this year, workers in special forms of labor provision such as delivery riders and substitute drivers were included in a special collection program for overdue taxes owed by small individual business operators, and the threshold for qualifying arrears was raised to 80 million won from 50 million won. Those who meet the requirements can be exempted from late-payment penalties and pay overdue amounts in installments while restarting after closing a business.
"Withholding an appropriate amount from the start is more convenient for taxpayers than withholding a large amount and refunding it later," National Tax Service Commissioner Lim Kwang-hyun said, urging the National Assembly to pass the withholding rate cut.
