(TAX ALERT) Expanded tax exemption limit of childcare allowance under the amended tax law (effective from January 1, 2026)
This Tax Alert is to inform you of a recent amendment to the Korean Individual Income Tax Law(IITL) regarding the tax-exemption limit of childcare allowance.
□ Key changes
- Change in exemption limit: The tax exemption limit of childcare allowance for employees having children of six years of age or younger has been expanded from KRW 200,000 per month to KRW 200,000 per month and per child.
- Effective date: Applicable to income earned on or after January 1, 2026.
- Examples of tax exemption limits (for reference):
- 1 child: up to KRW 200,000 per month
- 2 children: up to KRW 400,000 per month
- 3 children: up to KRW 600,000 per month, etc.
- Practical considerations to be made by employer:
To benefit from this non-taxable treatment of childcare allowance of KRW 200,000 per month and per child, the employment contract shall be revised properly to reflect the amount of childcare allowance as a separate pay element.
- Sample employment contract terms:
The Company shall provide a childcare allowance of KRW 200,000 per month and per child to employees who have children of six years of age or younger, in accordance with Article 12 of the Individual Income Tax Law. Such allowance shall be treated as non-taxable income within the scope permitted under the relevant tax laws. The total tax-exempt amount shall be calculated by aggregating KRW 200,000 per month for each qualifying child.
□ Extract of relevant provisions of IITL
For your reference, we also provide you with the extract of the relevant provisions of IITL as below.
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Before Revision |
After Revision (from January 1, 2026) |
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Individual Income Tax Law (IITL)
Article 12. Non-taxable income The income listed below shall not be subject to income taxation.
(19) (2) The monthly amount not exceeding Won 200,000,received from an employer in connection with the childcare of a child of a worker or the spouse of a worker who is six years of age and under (to be determined based on the date of commencement of the relevant taxable period) |
Individual Income Tax Law (IITL)
Article 12. Non-taxable income The income listed below shall not be subject to income taxation.
(19) (2) An amount not exceeding Won 200,000 per month and per child, received from an employer in connection with the childcare of a child of a worker or the spouse of a worker who is six years of age and under (meaning the period up to and including the day the child attains six years of age, as determined based on the commencement date of the relevant period) |