The income tax deduction limit for households with multiple children will be expanded. The deadline for applying the credit, which was set to end this year, will be extended to the end of 2028, and the deduction limit per child will be increased to a maximum of 500,000 won. This measure is aimed at alleviating the tax burden for workers in consideration of the living expenses incurred by raising children.
The Ministry of Economy and Finance announced the '2025 tax reform plan' which includes these details. Currently, the credit limit for individuals with a total salary of up to 70 million won is the same at 3 million won, regardless of the number of children. If the revision passes, the deduction limit for a household with one child will increase to 3.5 million won, while for a household with two children, it will be raised to 4 million won.
For high-income earners with a total salary exceeding 70 million won, the deduction limit will also be increased. Previously, a deduction of up to 2.5 million won was permitted irrespective of the number of children, but according to the revised proposal, households with one child will be able to claim 2.75 million won, and those with two or more children will be able to claim up to 3 million won.
The Ministry noted, "If the deduction limits are uniformly increased, there is a concern that benefits will disproportionately favor high-income earners who have a high effective tax rate and sufficient consumption capacity, so we have applied it differentially," adding that "it was designed to provide more benefits to the underprivileged and middle class."
However, the expansion of deductions according to the number of children will be limited to the second child. There will be no additional deductions for third or more children. The Ministry stated, "Many other tax benefits are often applied under the same conditions for the second child," explaining that it was a decision made considering the financial circumstances. The government estimates that approximately 300 billion won in tax revenue will decrease due to this amendment.
◇ Elementary school students in low-grade levels can also claim education-related tax credit
The tax credit for private education expenses for elementary school students, which has been a subject of controversy, has also been included in this tax reform proposal. Currently, only children who are not yet in school can have 15% (up to 3 million won) of tuition for academies and sports facilities claimed as a tax credit, while only expenses incurred in public education have been eligible for tax credits for elementary school students.
If this amendment passes in the National Assembly, education-related expenses for extracurricular activities for first and second graders will be included as eligible for tax credits. The Ministry had previously indicated opposition to tax credits for private education expenses due to concerns about promoting private tutoring and regressivity, but shifted its stance according to the commitments of the Lee Jae-myung administration.
The Ministry noted, "We limited the target age to align with the age for parental leave under the Gender Equality in Employment Act (up to 8 years old, or second grade of elementary school), where the need for care is greater," stating that "we minimized the grade level concerned about the potential to promote private education."
◇ Non-taxable limits for childcare allowances based on the number of children will also be expanded, as well as non-taxable status for parental leave benefits
The government plans to expand the non-taxable limits for childcare allowances based on the number of children. Currently, non-taxable benefits for childcare allowances (benefits related to caring for children under 6 years old) are given up to 200,000 won per month, but through tax law amendments, this limit will be increased to 200,000 won per month per child. For example, if a household has two children, they will be able to receive non-taxable benefits of up to 4.8 million won annually.
The government will also improve the issue of university students working part-time jobs and not being able to receive education-related tax credits. Under current law, if a child's total annual salary exceeds 5 million won, they are excluded from education expense tax credits, but this income requirement will be abolished. The Ministry stated, "We considered the reality where students solve their expenses through part-time jobs due to insufficient parental support and are thus unable to receive tax deductions for education expenses."
Meanwhile, the government has decided to expand the non-taxable status and limits for parental leave payments. Until now, parental leave payments for employees working in institutions applying for the Private School Pension Act, but that are not private schools, were not exempt from taxation.
However, according to this amendment, employees at research institutions and national universities, such as KAIST (Korea Advanced Institute of Science and Technology), national university hospitals, and lifelong education institutions, will also receive tax-exempt benefits for parental leave payments. Additionally, the non-taxable limits for clerical staff at private schools or educators categorized under special provisions will also be improved to the levels of regular employees.