[Income Tax in Korea] Religious person’s income

Religious person’s income

 

Religious person’s income

Definition of Religious Person's Income

Religious person's income, as defined in Article 21 (1) 26 of the Income Tax Act, refers to the income received by a religion-related worker, also known as a "religious worker," from the religious organization he/she belongs to. This income is related to the execution of a religious rite or any other activity performed as part of their religious duties.

Religion-related Workers & Religious Organizations

1.Religion-related Workers

Religion-related workers are classified based on the Korea Standard Classification of Occupations publicly announced by the Commission.

Religion-related Workers

2. Religious Organizations

Religious organizations are groups established for the preaching of religion and edification. They include: - Non-profit making juristic persons established under the Civil Act (Article 32).

• Organizations deemed juristic persons based on the Framework Act on National Taxes (Article 13).
• Organizations assigned a registration number for real estate according to the Registration of Real Estate Act (Article 49 (1) 3).

Taxable Income

Taxable income for religious workers includes monthly or regular allowances paid by their religious organization for religious activities, such as living expenses, bonuses, and incentives. The taxable income is calculated by subtracting non-taxable income from the total income paid to the religious worker by the religious organization.

• Taxable income can comprise fixed amounts or expenses paid by the religious organization on behalf of the religious worker (e.g., utility bills, medical expenses, insurance premium, moving expenses).
• The classification of income as taxable or non-taxable depends on whether the expense is related to religious activities and whether the right of disposal belongs to the religious worker.

Non-taxable Income

Some income items are considered non-taxable for religious workers, including:

a) School Expenses:

• Entrance fees, tuition expenses, and other regular school payments made to educational institutions attended by religious workers for education and training related to their religious activities. This includes schools as prescribed by Article 2 of the Elementary and Secondary Education Act, Article 2 of the Higher Education Act, and Chapter 5 of the Lifelong Education Act.

b) Meal or Meal Expenses

• Meals or other foods provided by the religious organization to a religious worker.
• Meal expenses worth 100,000 won or less per month provided to a religious worker who does not receive meals from the organization.

c) Payment as Compensation for Actual Expenses

• Compensation for daytime duty, nighttime duty, or similar compensations.
• Payment for travel expenses as compensation, up to 200,000 won per month, based on the religious organization's payment standards instead of actual travel expenses incurred by the religious worker.
• Religious activity expenses, including money and goods provided for religious activities according to the religious organization's rules or approved criteria. These expenses are considered non-taxable income even if the religious worker's income is filed as wage & salary income.

d) Childbirth and Childcare Related Expenses

• A religious organization can pay up to 100,000 won per month for the childbirth of a religious worker or their spouse, or childcare for a child aged six or younger (based on the first day of the relevant taxable period).

e) Profit from the Provision of Company Housing

• This refers to the profit received by a religious worker from company housing provided by a religious organization. The housing must either be owned by the organization and provided for free or at a low cost, or directly leased by the organization and provided free of charge to the religious worker.

Selection of Income Type

Religious person's income is generally classified as "other income" under the Income Tax Act. However, it is considered "wage & salary income" if it is withheld as such or if a finalized return of the tax base is filed.

Income to Report

• 1) Where There is Only Religious Person's Income
  • If a religious organization paid religious person's income without withholding income tax or doing year-end tax settlement, the religious person who received the income should file a finalized return of global income tax base.
  • This applies in cases where taxes were not withheld from the religious person's income or where taxes were withheld, but year-end tax settlement was not done.
  • If religious person's income was paid from two or more religious organizations, and year-end tax settlement was not done on the total income sum, a finalized return of global income tax base should be filed.
• 2) Where There is Income Other Than Religious Person's Income
  • If a person received religious person's income along with other income (e.g., financial income, business income, wage & salary income, pension income, other income) subject to a finalized return of global income tax, they should file a finalized return of global income tax base for the sum of religious income and other income. This applies regardless of whether the religious income was withheld or year-end tax settlement was done.

Return Forms

• 1) Single Income - Return for Income Earner Who is a Religious Person (Form no. 40 (5))
  • Use this form when income was not withheld or year-end tax settlement was not done. Also, use it when there is only religious person's income received from two or more religious organizations, and year-end settlement for the total income was not done.
• 2) Finalized Return of Global Income Tax Base (Form no. 40 (1))
  • Use this form when filing a finalized return of global income tax for religious person's income as wage & salary income. Also, use it when there are other types of income in addition to religious person's income.

Exceptions to Filing a Finalized Return of Global Income Tax Base for Religious Person's Income

• 1) Where There is Only Religious Person's Income as Other Income Not Withheld
  • In this case, a final return of the tax base may not be required.
• 2) Where Taxes Were Settled by Withholding Agent for the Sum of Religious Person's Income
  • If the withholding agent settled taxes for the total sum of religious person's income, and there is no additional tax to be paid, a finalized return of the tax base may not be necessary.

 

Conclusion

Understanding the taxation rules for religious workers and religious organizations in Korea is essential to ensure compliance with the Income Tax Act. By distinguishing between taxable and non-taxable income and by adhering to the guidelines and filing the appropriate tax forms, both religious workers and religious organizations can manage their finances effectively.