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Let's talk tax rates: Contractors, legality, and 3.3%
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RMNC



Joined: 21 Jul 2010

PostPosted: Fri Apr 22, 2011 2:33 pm    Post subject: Let's talk tax rates: Contractors, legality, and 3.3% Reply with quote

So I've been getting a ton of e-mails and PMs lately about tax rates, with the new hiring season approaching. Most people seem generally confused about what their tax rates should be.

Let's get this out the way right now. Type in your salary at this website:

http://www.nts.go.kr/eng/help/help_52.asp?top_code=H001&sub_code=HS05&ssub_code=HSE2

The number it spits out is what you should be taxed every month when you get your check. So if you are going to have a salary of 2.1million won per month, you should pay 28,510 won.

It is NOT 3.3%

There are two types of people you can have work for you on an E-2 visa, an employee and a contractor. The 3.3% tax rate is for contractors. If you are in a contract that says "the employee shall..." then you are an employee, not a contractor.

So why do schools try to register you as a contractor with immigration? They're protecting their bottom line. Companies that have 5 "employees" or less are given tax breaks for being small businesses. Obviously, many hagwons have upwards of 20 or more employees, therefore to cheat the system they will make the teacher think that they're an employee when they really aren't.

Contractors are required to pay for their own pension and health insurance by law, so most employers will pay half of their employee's share to continue the illusion for the employee that they're not registered as a contractor.

So why does this still exist despite it being obviously illegal tax dodging? Well, the problem is two-sided. Hagwons look at each other's contracts and communicate with each other. They go "I charge my employees 3.3%!" and their other hagwon friends say "Wow! Your teachers let you get away with cheating them?! It's so crazy I have to do it too!". Eventually the 3.3% becomes the norm. Other times the owners of the school are inept and don't understand the business aspect of taxes.

The other side of the problem is the teachers: A majority of them don't ever take the time to research their contracts, being mostly young graduates with little understanding of the Korean tax system. They jump at the chance to have a job with only 3.3% income tax without even knowing they're actually paying double what they should.

So in the end, what does it all mean? Simply, if you see 3.3% on your taxes when you're offered a contract, you need to tread lightly with that school. If they're willing to rip not only you, but the Korean government off, what's to stop them from screwing you in any other multitudes of ways?

If a recruiter or a school tries to tell you "This is what all Koreans pay" then you need to take the link above and stick it in their face and say "This is how much I will pay, either change it or find someone else". Others already working contracts with false taxation may use this information to extort their employers back into legality, a choice that morally I have no qualms with and have done before.

I'd like to ask others to share their tax stories and information with the rest of us if you're comfortable. Tell us what tax rate you're being offered or are working at, whether it's 3.3%, lower, or even higher, and your experiences with trying to get the correct tax rates used for your income bracket. I'm also particularly interested in anyone who has challenged their hagwon bosses at the tax game and won.


Last edited by RMNC on Sun Apr 24, 2011 8:42 pm; edited 2 times in total
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SeoulNate



Joined: 04 Jun 2010
Location: Hyehwa

PostPosted: Fri Apr 22, 2011 10:04 pm    Post subject: Reply with quote

To make a long story short, I finished a contract at a franchised Avalon that was paying me pension, healthcare and paid proper taxes. About three weeks before the contract finished new management was brought in. I had already signed on for another year with the old contracts.

After my contract was finished the new managers called me and my GF in to ask us to sign new contracts. I didnt think too much of it until I got to reading them and noticed that they had tried to change us to contractors, not pay our pension and the other crap that goes along with that.

Anyway, after numerous calls to the pension office, labor board and police I used all of that to force them to give me a LOR and I got a nice fat bonus for 'quitting' lol.

Now i am back working for a legit school
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tua111111



Joined: 20 Apr 2010

PostPosted: Fri Apr 22, 2011 11:22 pm    Post subject: Re: Let's talk tax rates: Contractors, legality, and 3.3% Reply with quote

RMNC wrote:
So I've been getting a ton of e-mails and PMs lately about tax rates, with the new hiring season approaching. Most people seem generally confused about what their tax rates should be.

Let's get this out the way right now. Type in your salary at this website:

http://www.nts.go.kr/eng/help/help_52.asp?top_code=H001&sub_code=HS05&ssub_code=HSE2

The number it spits out is what you should be taxed every month when you get your check. So if you are going to have a salary of 2.1million won per month, you should pay 28,510 won.

It is NOT 3/3%

There are two types of people you can have work for you on an E-2 visa, an employee and a contractor. The 3.3% tax rate is for contractors. If you are in a contract that says "the employee shall..." then you are an employee, not a contractor.

So why do schools try to register you as a contractor with immigration? They're protecting their bottom line. Companies that have 5 "employees" or less are given tax breaks for being small businesses. Obviously, many hagwons have upwards of 20 or more employees, therefore to cheat the system they will make the teacher think that they're an employee when they really aren't.

Contractors are required to pay for their own pension and health insurance by law, so most employers will pay half of their employee's share to continue the illusion for the employee that they're not registered as a contractor.

So why does this still exist despite it being obviously illegal tax dodging? Well, the problem is two-sided. Hagwons look at each other's contracts and communicate with each other. They go "I charge my employees 3.3%!" and their other hagwon friends say "Wow! Your teachers let you get away with cheating them?! It's so crazy I have to do it too!". Eventually the 3.3% becomes the norm. Other times the owners of the school are inept and don't understand the business aspect of taxes.

The other side of the problem is the teachers: A majority of them don't ever take the time to research their contracts, being mostly young graduates with little understanding of the Korean tax system. They jump at the chance to have a job with only 3.3% income tax without even knowing they're actually paying double what they should.

So in the end, what does it all mean? Simply, if you see 3.3% on your taxes when you're offered a contract, you need to tread lightly with that school. If they're willing to rip not only you, but the Korean government off, what's to stop them from screwing you in any other multitudes of ways?

If a recruiter or a school tries to tell you "This is what all Koreans pay" then you need to take the link above and stick it in their face and say "This is how much I will pay, either change it or find someone else". Others already working contracts with false taxation may use this information to extort their employers back into legality, a choice that morally I have no qualms with and have done before.

I'd like to ask others to share their tax stories and information with the rest of us if you're comfortable. Tell us what tax rate you're being offered or are working at, whether it's 3.3%, lower, or even higher, and your experiences with trying to get the correct tax rates used for your income bracket. I'm also particularly interested in anyone who has challenged their hagwon bosses at the tax game and won.


I showed my employer this website because my tax withholdings are 1.9% on my current salary. Then they showed me this calculator [http://www.nts.go.kr/eng/help/help_53.asp?top_code=H001&sub_code=HS05&ssub_code=HSE3] and put in my severance pay and said our tax should be 2.9%.

They argued that if I am an independent contractor, I get a tax refund of at least 1.5% and they are not sure I will get a refund if I am under "employee" status. I spoke with the tax office, but didn't get a clear answer. I e-mailed the person I spoke with but didn't get an answer back yet. Do you know anything about the tax refund?

Another worry of mine is that if I choose a settlement with the school, they won't compensate me appropriately, given the overtax I have paid, so I'm losing out. If I go to the Labor Board, will they take into consideration my prior tax withholdings and compensate me justly?
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CentralCali



Joined: 17 May 2007

PostPosted: Fri Apr 22, 2011 11:30 pm    Post subject: Reply with quote

Ah, the infamous "independent contractor" issue. Look, folks. Is your employer your sponsor? If so, you are not independent. Does your employer set the working conditions? If so, you are not independent.
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SeoulNate



Joined: 04 Jun 2010
Location: Hyehwa

PostPosted: Sat Apr 23, 2011 2:25 am    Post subject: Reply with quote

they are trying to screw with you. Your severance is not calculated into your monthly pay when using that calculator.

Report their asses since they are obviously not paying your pension or NHIC either.

You can probably kiss the money goodbye either way since it was your obligation from jump street to make sure that everything was in order.

This kind of crap makes me wish that new NETs would be required to addend a class informing them of all the BS that happens in the work place that has to do with monetary issues. Uninformed people letting hogwons screw them around is why it has gotten as bad as it is now.
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ssuprnova



Joined: 17 Dec 2010
Location: Saigon

PostPosted: Sun Apr 24, 2011 5:06 am    Post subject: Reply with quote

OK so what's happening here?

Income before deductions: 2'580'000 Won

Income tax withheld by my employer: 89'230 (3.5% of my income)
Employment insurance: 11'610
Basic tax for resident: 8'920

Income tax that I should be paying according to the calculator: 56'920 (2.2% of my income).

I'm also paying in 4.4% into the pension fund, 3.2% for medical insurance. I'm sure that I'm enrolled into the latter since I'm in the NHF system and get a discount on prescriptions.

Is my employer cheating the system?

How serious is this under Korean law and should I do anything about it?
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SeoulNate



Joined: 04 Jun 2010
Location: Hyehwa

PostPosted: Sun Apr 24, 2011 6:27 am    Post subject: Reply with quote

If your numbers are right, they are either cheating you or are incompetent.

1. Your salary seems a bit odd, is that your actual contracted monthly wage?

2. Your pension should be 4.5%

3. Your healthcare is what really bugs me. It should be 2.25%. It being well over that makes me think they are screwing you.

Easiest way to find out is to call the pension office and see if you are registered and money is actually being deposited. If it is, then you really need to sit down with whoever is playing accountant at your school and see if they are intentionality trying to cheat you.
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marsavalanche



Joined: 27 Aug 2010
Location: where pretty lies perish

PostPosted: Sun Apr 24, 2011 6:38 am    Post subject: Reply with quote

Oh PLEASE sticky this thread.

Thank you OP.

TOO many jobs with the 3.3% tax rate. It's lack of knowledge that is killing jobs to the point where they know the next person they look at WILL accept this and getting screwed among other things.
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ssuprnova



Joined: 17 Dec 2010
Location: Saigon

PostPosted: Sun Apr 24, 2011 7:49 am    Post subject: Reply with quote

SeoulNate wrote:
If your numbers are right, they are either cheating you or are incompetent.

1. Your salary seems a bit odd, is that your actual contracted monthly wage?

2. Your pension should be 4.5%

3. Your healthcare is what really bugs me. It should be 2.25%. It being well over that makes me think they are screwing you.

Easiest way to find out is to call the pension office and see if you are registered and money is actually being deposited. If it is, then you really need to sit down with whoever is playing accountant at your school and see if they are intentionality trying to cheat you.


Yeah actually I'm getting paid for extra work, hence the odd numbers. Going to call the pension office... or, rather, ask a friend to do that since I'm guessing that it's all in Korean.

Anyway thanks for the fast reply.
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SeoulNate



Joined: 04 Jun 2010
Location: Hyehwa

PostPosted: Sun Apr 24, 2011 8:03 am    Post subject: Reply with quote

they speak english. do it yourself so you can be sure
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akcrono



Joined: 11 Mar 2010

PostPosted: Mon Apr 25, 2011 3:18 am    Post subject: Reply with quote

I currently make 2.2 mil and pay the 3.3%. My original contract was as an employee complete with pension and health care (which my old crook of a boss never paid into), but when my school was bought out, my new boss showed me the math and assured me (correctly) that I would take home more per month as a contractor. While that is true, I did not know how pension (and these taxes) worked. Had I to do it over again, I would have stayed on my old contract.

I'm wondering if there's any recourse for me (tell my boss I should be paying less in taxes?). I also don't know if I could get a refund or not. Any help would be nice.
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hogwonguy1979



Joined: 22 Dec 2003
Location: the racoon den

PostPosted: Mon Apr 25, 2011 4:01 am    Post subject: Reply with quote

if your salary is above 3mil the tax rate really jumps, play with the numbers on the nts website, they just about double if you make more than 3 mil/month.

got a nice pay raise changing jobs and saw a decent sized chunk of that go to taxes, at least i've been using my samsung cc a lot so that will help
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ontheway



Joined: 24 Aug 2005
Location: Somewhere under the rainbow...

PostPosted: Mon Apr 25, 2011 6:03 am    Post subject: Reply with quote

ssuprnova wrote:
SeoulNate wrote:
If your numbers are right, they are either cheating you or are incompetent.

1. Your salary seems a bit odd, is that your actual contracted monthly wage?

2. Your pension should be 4.5%

3. Your healthcare is what really bugs me. It should be 2.25%. It being well over that makes me think they are screwing you.

Easiest way to find out is to call the pension office and see if you are registered and money is actually being deposited. If it is, then you really need to sit down with whoever is playing accountant at your school and see if they are intentionality trying to cheat you.


Yeah actually I'm getting paid for extra work, hence the odd numbers. Going to call the pension office... or, rather, ask a friend to do that since I'm guessing that it's all in Korean.

Anyway thanks for the fast reply.


Pension is not actually 4.5%. It's 4.5% for the midpoint of a bracket based on your reported income. If you are not in the middle of a bracket your pension could be more or less than 4.5%. In any case, the pension office will set your pension amount and this amount is fixed monthly and does not vary even if you have overtime or other amounts paid to you. If you stay with the same employer, they will then adjust your rate for the next year based on actual numbers from the current year. You should be able to check with the pension office or see the actual bill.

Health insurance has gone up. It's more like 2.9% these days. It is also a set amount billed to your employer. You should be able to check with them directly or ask to see the bill.

You should NOT be paying unemployment insurance if you are on an E2 visa. That one you should ask to your employer to stop. I'm not sure if your employer can get refunds for the amounts they have already paid.

Your income tax should be according to the NTS monthly withholding calculator.

Most teachers will lose if they choose to be independent contractors in Korea, unless they are from countries that cannot get the pension refunded and they also cheat and don't pay their required pension and health insurance as independent contractors.

If your income is higher, and your actual tax rate should be higher than the 3.3% independent contractor withholding rate, you actually owe the higher tax amount. This will not actually help you save money either, unless you cheat. Income taxes in Korea are progressive for everyone.
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SeoulNate



Joined: 04 Jun 2010
Location: Hyehwa

PostPosted: Mon Apr 25, 2011 6:10 am    Post subject: Reply with quote

akcrono wrote:
I currently make 2.2 mil and pay the 3.3%. My original contract was as an employee complete with pension and health care (which my old crook of a boss never paid into), but when my school was bought out, my new boss showed me the math and assured me (correctly) that I would take home more per month as a contractor. While that is true, I did not know how pension (and these taxes) worked. Had I to do it over again, I would have stayed on my old contract.

I'm wondering if there's any recourse for me (tell my boss I should be paying less in taxes?). I also don't know if I could get a refund or not. Any help would be nice.


lol, sorry to inform you, but you got taken for a ride. Badly.

the math works like this:

You make 2.2 million won per month = 1.3% in taxes that means you would pay 29,000 per month in taxes

At 3.3% you will pay 72,600 per month

Right there you POCKET 43,000 won per month.

BUT WAIT THERES MORE!

You would pay 55,000 won to healthcare every month and net 99,000 per month from pension. You pay 4.5% and your employers pays 4.5%, all of which you get back at the end of the year. Healthcare is 2.25% each way.

Which means even if you pay ZERO for healthcare now, the pension option nets you 44,000 won every month.

44,000 + 43,000 = 87,000 x 12 = 1,044,000 won you left on the table, that is assuming your dont pay heath care now. If you do, even more lols, you probably left about 1,600,000 won on the table if that is the case.

Why do you believe your boss? They are doing nothing but trying to screw you. Research it yourself.

Even after reading this thread you still incorrectly assumed that your boss told you the truth. You lost out on 1,000$ because you didn't take 5 minutes to do the research.

I stand by my previous declaration: If you want to teach in Korea, you need to take a class before you come on pension and taxation laws in Korea. Some basic math skills might also help.

Sorry if this comes off a little indignant, I just can't believe that people still fall for the same crap over and over, even after trolling these and other boards for a year or two.

Step up people. Tell your boss to shove it when they tell you that you will be better off as a private contractor. The law is on your side!
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akcrono



Joined: 11 Mar 2010

PostPosted: Mon Apr 25, 2011 8:18 pm    Post subject: Reply with quote

My boss WAS telling me the truth, as I DID start taking more money home each month. She didn't tell me the whole story though, like they matched pension and I would be getting that back.

I was only in Korea for 2 months when this happened. Maybe people "keep falling for it" because new people keep coming here?
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