The South Korean government decided on March 5 to eliminate the tax burden on both companies and their employees by offering a full tax exemption on childbirth incentives given to workers, such as those provided by Booyoung Group. Additionally, the government will bolster support for young people to alleviate the financial burdens associated with marriage and childbirth. This includes lowering the income threshold for young working couples applying for housing and covering childcare expenses upfront for single-parent families.
President Yoon Suk-yeol, on the same day, said, “We will make the childbirth support payments made by companies to employees completely tax-exempt to reduce the burden on companies and allow more employees to benefit from it,” during the 17th public policy debate on the topic of “Youth” at Ivex Studio in Gwangmyeong City, Gyeonggi Province. “The Ministry of Economy and Finance has generously made concessions,” he added.
Recently, Booyoung Group and the private equity firm IMM have provided their employees with up to about 100 million won per child for childbirth and childcare support. Criticism has arisen that the labor income tax or gift and corporate taxes of 30 to 40 million won imposed on these support payments are excessive.
In response, the government has decided to exempt all income taxes on childbirth support payments received from the workplace within two years after giving birth. This exemption applies even if an employee’s income increases with up to two subsidies per child and there is no upper limit on the amount of childbirth support payment. For this year only, the subsidy paid for children born in 2021 will be tax-exempt. “We will apply it retroactively to childbirth support payments made from Jan. 1 this year so that it can benefit companies that have already paid childbirth incentives,” said Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok. However, this measure requires the National Assembly to amend laws such as the Income Tax Act when it convenes in May.
An employee with an annual salary of 50 million won who receives 100 million won in childbirth support funds would have had to pay about 40 million won in combined income and local taxes based on a total salary of 150 million won, according to the tax base. However, with this tax exemption measure, they would only need to pay about 6.86 million won in taxes on the original salary of 50 million won. An employee from Booyoung Group said during the debate, “It was quite shocking to have to pay about half of the support money in taxes,” and requested the government to “ensure that taxes do not undermine the purpose of childbirth incentives.”
