Young people will see expanded tax deduction benefits for individual defined contribution pensions (IRP). The government will create a separate 'youth type' for the newly established 'productive financial ISA (Individual Comprehensive Asset Management Account)' to strengthen benefits. The application period for non-taxable treatment of childbirth support payments by companies will be extended to include the pregnancy stage.
The '2026 Tax Reform Plan' announced by the Ministry of Economy and Finance on the 3rd reflects a significant number of tax law provisions supporting youth, marriage, and childbirth. Expansion of retirement pension tax support is representative. Currently, a 12% income tax deduction is applied to retirement pension contributions up to an annual limit of 9 million won. For those with total annual compensation of 55 million won or less, or comprehensive income amount of 450 thousand won or less, the deduction rate is 15%.
The government included in this reform plan a provision to apply a 15% income tax deduction rate regardless of income for youth aged 15 to 34. For example, a young person with total annual compensation of 60 million won who contributes 3 million won annually to an IRP currently receives a tax deduction of 360,000 won based on the 12th% deduction rate, but will receive a tax deduction of 450,000 won under the new 15% deduction rate.
Rent tax deductions also favor youth in a similar manner. Under current law, employees with total annual compensation of 80 million won or less receive a rent tax deduction of 15% on rent payments up to an annual limit of 10 million won. For employees with total annual compensation of 55 million won or less, or comprehensive income amount of 450 thousand won or less, the deduction rate is 17%.
To alleviate young people's housing cost burdens, the government will increase the rent tax deduction rate to 17% when youth receive rent tax deductions. However, a sunset clause has been set for the application period until December 31, 2029. Separately, the government is also pushing to expand the monthly rent limit for all rent tax deductions from the current annual 10 million won to 12 million won.
To activate capital markets, a productive financial ISA that fully exempts interest and dividends from domestic investments from taxation will be established. In particular, a separate 'youth type' will be created within the productive financial ISA, applying a 10% income tax deduction on ISA contributions. The youth type is available only to those aged 34 or younger with total annual compensation of 75 million won or less.
Additionally, value-added tax (VAT) exemption will be applied to public-type university dormitories, and the non-taxable treatment period for interest income from the 'Soldiers' Future Preparation Savings Account,' which supports asset formation for youth, will be extended by three years. The VAT exemption application period for meal services supplied at schools, factories, and construction sites will also be extended by three years.
Tax reform measures to support marriage and childbirth are also being pursued. The childbirth support payment non-taxable system, which fully exempts from taxation childbirth support payments made by companies within two years after a child is born, will have its application period expanded to include the pregnancy stage. This measure takes into account that some companies provide childbirth support payments starting from the pregnancy stage.
As measures to reduce the 'marriage penalty,' the scope of individuals eligible for income tax deductions on principal and interest repayments of housing rental loans will be expanded. When repaying principal and interest, 40% of the repayment amount is subject to income tax deduction; currently, only one household head receives this benefit. In the future, income tax deductions will be allowed separately for unmarried couples living in different residences. The combined deduction limit for couples is 4 million won annually.
When a couple acquires two small cars due to marriage, fuel tax refunds will be allowed for one of the small cars. Currently, households with two or more passenger or multipurpose vehicles are ineligible for fuel tax refunds. The application period for fuel tax refund on fuel used by small cars will be extended by three years.
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