How Income Tax Works in Korea — Building a Take-Home Pay Calculator

In Korea, calculating take-home pay involves several deductions including insurance, income tax, and local income tax. Employers deduct four mandatory contributions, each based on the employee's monthly gross salary. The Insurance Employee Rate is 4.5%, Health Insurance is 3.545%, Long-term Care is 12.95% of health premium, and Employment Insurance is 0.9%. These deductions are calculated using a function that returns an object with each deduction amount.

Korea utilizes a simplified withholding tax table for monthly payroll. This table takes into account the monthly taxable income (gross minus non-taxable items) and the number of dependents. Instead of using the full progressive tax brackets, payroll systems employ pre-computed tables. The function to calculate income tax takes the annual taxable income and the number of dependents as inputs.

It finds the appropriate tax bracket, calculates the annual tax, subtracts the dependent deduction, and then divides the final tax by 12 to get a monthly value.

Local income tax in Korea is calculated as 10% of the national income tax. To determine take-home pay, the function first calculates monthly gross salary, insurance deductions, and total insurance value. It then finds the annual taxable income by subtracting total insurance from the annual salary. Income tax is calculated using the previously defined function, and local tax is found by multiplying the income tax by 0.1.

Finally, all deductions are summed, and the take-home pay is calculated by subtracting the total deductions from the monthly gross salary.