[2026 Tax Reform] Dual-Income Low-Income Households Earning Up to 52 Million Won Annually to Receive 3.6 Million Won in EITC

Income Requirement for Dependent Deductions Raised to 3 Million Won
17% Monthly Rent Tax Credit for Young People Regardless of Salary
Marriage Penalties Eased: Tax Deductions for Both Spouses Living Apart

Starting next year, the Earned Income Tax Credit (EITC), which serves as a "cash bonus" for low-income households, will be expanded to 3.6 million won for dual-income households. The income requirement for dependents to be eligible for tax deductions during year-end tax settlement will be significantly eased to 3 million won in annual income. Young people will be able to receive a 17% income tax deduction on monthly rent, regardless of their total salary. The government will pursue tax reforms aimed at reducing the tax burden on the working class and young people, and raising real income amid rapidly rising prices.

Lowering the EITC Barrier and Raising Payouts… Enhancing Safety Nets for Low-Income Households

According to the "2026 Tax Reform Plan" announced by the Ministry of Economy and Finance on August 3, the scope and payout amounts of the Earned Income Tax Credit (EITC) will be greatly expanded to encourage work incentives for low-income households and guarantee real income. The total income threshold to qualify for EITC will be significantly increased depending on the household type. For single-person households, the threshold will rise from the current 22 million won to 26 million won; for single-earner households, from 32 million won to 37 million won; and for dual-earner households, from 44 million won to 52 million won. Taking into account next year’s minimum wage increase (to 10,700 won per hour), the maximum payment amount will also be raised by approximately 9%. Single-person households will see a maximum payout increase from 1.65 million won to 1.8 million won; single-earner households from 2.85 million won to 3.1 million won; and dual-earner households from 3.3 million won to 3.6 million won.

In particular, to reduce the disadvantage resulting from marriage, the “plateau range” (the income segment where recipients get the maximum payout without reduction even if income increases) for dual-income households is being raised from 17 million won to 18 million won. Previously, if a man and woman—each from a single-person household earning 9 million won each and individually receiving 1.65 million won (a total of 3.3 million won)—got married, their combined income would reduce the total payout to 3.18 million won as a dual-income household. With this reform, they will be able to receive the full 3.6 million won even after marriage. As a result, the number of households benefiting from the EITC is expected to increase by about 730,000, from the current 4.16 million to 4.89 million households.

Yonhap News

Monthly Rent Tax Deduction Cap Increased to 12 Million Won… Reducing Housing Costs for the Houseless

Tax support for housing costs will be greatly expanded for employees without homes who face sharp increases in living expenses. First, the annual cap on monthly rent tax deductions for houseless employees with total salary of 80 million won or less (or total comprehensive income of 70 million won or less) will be raised from the current 10 million won to 12 million won. The deduction rate remains at 15% (or 17% for those with total salary under 55 million won), which means employees spending a high proportion of their income on rent will see higher year-end tax refunds. In addition, the special housing subscription savings income deduction for houseless household heads—currently scheduled to expire in 2028, allowing deduction of 40% of deposits—will be made permanent so that support for stable housing can continue.

Dependent Income Requirement Eased Threefold, from 1 Million Won to 3 Million Won

During year-end settlement of comprehensive income tax, the income requirement for dependents to qualify for tax deductions will be updated to reflect the current reality. Until now, to claim a 1.5 million won deduction per spouse or dependent, the dependent’s annual income had to be 1 million won or less (or total salary of 5 million won or less for employment income only). The revised plan will substantially relax this threshold to 3 million won in annual income (or total salary of 7.5 million won for employment income only). This revision means that dependents who were previously excluded due to small amounts of income from short-term part-time work, side jobs, or minor freelance gigs can now be included, thereby reducing the tax burden on the middle and working class.

Tailored Tax Support for Young People… Expanded Monthly Rent and Pension Tax Credits

Various customized benefits will be implemented to support the economic independence and asset building of young people taking their first steps into society. The goal is to link rent reduction, pension preparation, and the accumulation of lump-sum savings in a virtuous cycle for young workers. From now until 2029, young people aged 15–34 who claim a deduction for monthly rent will receive the top deduction rate of 17%, regardless of their total salary. Previously, young employees with a total salary above 55 million won were only eligible for a 15% deduction. For example, a young employee earning 70 million won per year and paying 12 million won annually in rent (1 million won per month) could only have 1.5 million won deducted under the old rule, but will receive 2.04 million won under the revision—an increase of 540,000 won.

The income tax deduction rate for young people contributing to retirement pensions (IRP) will also increase from the current 12% to 15%. For example, if a young person with a total salary of 60 million won contributes 3 million won annually to an IRP, the tax deduction increases by 90,000 won—from 360,000 won to 450,000 won.

Tax-Exempt Childbirth Allowance from Pregnancy… Eliminating Tax Disadvantages for Newlyweds

Tax support for marriage and childbirth will become more detailed in order to address low birth rates and reduce burdens related to marriage and childcare. The period during which childbirth allowances paid by companies to employees are exempt from taxation will be extended from "within two years after childbirth" to include support payments made from the start of pregnancy up until birth. This aims to reduce the early financial burden of pregnancy and childbirth. In addition, households with both spouses working and without homes—who live separately—will now both be allowed to claim tax deductions for housing loan principal and interest payments (up to 4 million won per year each). If a household has two compact cars due to marriage, a fuel tax refund (up to 300,000 won per year) will continue to apply for one vehicle. Moreover, foster care allowances (up to 200,000 won per month) will also be exempt from taxation, further incentivizing marriage and childbirth.

This content was produced with the assistance of AI translation services.