Essential Tax Basics for High-Value Prize Events
We explain the basic tax info needed for events that award high-value prizes.
Both winners and businesses (prize providers) can find detailed info worth knowing.
What is withholding tax and why do you have to pay it?
Under the duty to pay taxes, citizens of the Republic of Korea must pay taxes. Among the various taxes, withholding tax is a tax levied on other income. Other income refers to income that occurs temporarily or irregularly, such as lecture fees, manuscript fees, consulting fees, royalties, and prize winnings. Other income is required to be withhold 22% of the product value as tax when it exceeds 50,000 KRW.
According to Article 21 (Other Income) of the Income Tax Act, money and goods received by winning prizes, rewards, lotteries, prize coupons, and other draw tickets are specified as other income.
Withholding Tax by Product Value
Income tax 20%
(other income)
Resident tax 2%
(10% of income tax)
Withholding tax 22%
Withholding tax220K KRW
Gift card 1M KRW
Withholding tax2.2M KRW
Prize 10M KRW
Withholding tax99M KRW
Prize 300M KRW
* When exceeding 300 million KRW, paid at a 33% tax rate
What is withholding tax withholding?It is a system in which the withholding agent (prize provider) collects in advance the tax that the winner (prize recipient) must pay and remits it to the National Tax Service.According to Article 145 of the Income Tax Act, when a withholding agent pays other income, the income tax
calculated by applying the withholding tax rate to that other income must be withheld.
calculated by applying the withholding tax rate to that other income must be withheld.
Withholding Tax Withholding Procedure
Winner
①
③
Business
(prize provider / withholding agent)
(prize provider / withholding agent)
②
National Tax Service
① The winner pays the withholding tax to the business
② The business remits the withholding tax to the National Tax Service
③ Delivers the prize to the winner and issues a withholding receipt
② The business remits the withholding tax to the National Tax Service
③ Delivers the prize to the winner and issues a withholding receipt
Refund of Withholding Tax Paid by Winners
Can I get a refund on the withholding tax I paid?
When a 'winner' receives a prize exceeding 50,000 KRW, they must pay 'withholding tax' at the 22% rate applied to high-value prizes. The 'prize-providing company' collects the 'withholding tax' from the 'winner' and reports it to the National Tax Service.
A taxpayer or dependent can compare the 'comprehensive income tax' they would owe on income equal to the prize value with the 'withholding tax', and if they paid more in withholding tax, they can receive a refund for the difference. File the 'comprehensive income tax' return on the prize income via Hometax and receive a refund of the difference.
If the comprehensive income tax rate applied to the winner's income bracket is higher than 22%, they paid less withholding tax than what they would owe on the income, so there is no need to file a comprehensive income tax return on the prize income. Settling with the withholding tax paid when receiving the prize is enough. This is called 'separate taxation'.
Filing comprehensive income tax with reference to the tax base
| Tax base | Tax rate |
|---|---|
| 14M KRW or less | 6% |
| Over 14M KRW ~50M KRW or less | 15% |
| Over 50M KRW ~88M KRW or less | 24% |
| Over 88M KRW ~150M KRW or less | 35% |
[ 2023 Comprehensive Income Tax Base, Source: Ministry of Economy and Finance ]
Example
Comprehensive income tax base
50M KRW or less
50M KRW or less
Comprehensive income tax rate
15%
15%
Withholding tax
22%
22%
Difference refunded after filing comprehensive income tax
When the winner is a dependent: comprehensive income tax filing precautions
If a dependent with no income wins a prize, pays withholding tax, and files a comprehensive income tax return to get a refund, they will be excluded from the supporter's personal deduction.
If the dependent's (winner's) withholding tax refund amount is larger than the personal deduction tax benefit the supporter receives, the dependent should file a comprehensive income tax return and receive the withholding tax refund.
If the dependent's withholding tax refund amount is smaller than the supporter's personal deduction amount, the dependent should settle with the withholding tax paid without filing a comprehensive income tax return.
Case comparing the dependent's refund amount and the supporter's personal deduction
Dependent's refund amount
| Prize value | Estimated refund [withholding tax paid - (prize value * comprehensive income tax rate)] |
|---|---|
| 1M KRW | 154,000 KRW[220,000 KRW-(1M KRW*6.60%)] |
| 2M KRW | 308,000 KRW[440,000 KRW-(2M KRW*6.60%)] |
| 3M KRW | 446,000 KRW[638,000 KRW-(2.9M KRW*6.60%)] |
Case1
When the dependent received a prize of 2.9M KRW,
and the supporter's annual income is 13M KRW
and the supporter's annual income is 13M KRW
Dependent's refund amount
446,000 KRW
446,000 KRW
Supporter's personal deduction
99,000 KRW
99,000 KRW
The dependent's refund is larger, so 'comprehensive taxation' filing is needed
VS
Supporter's personal deduction
| Deduction amount | Supporter's annual income | Reduction (deduction * income tax rate) |
|---|---|---|
| 1 people 1M KRW | 14M KRW or less | 99,000 KRW(1.5M KRW*6.60%) |
| Over 14M KRW ~50M KRW or less | 247,500 KRW(1.5M KRW*16.50%) | |
| Over 50M KRW ~88M KRW or less | 396,000 KRW(1.5M KRW*26.40%) |
Case2
When the dependent received a prize of 1M KRW,
and the supporter's annual income is 70M KRW
and the supporter's annual income is 70M KRW
Dependent's refund amount
154,000 KRW
154,000 KRW
Supporter's personal deduction
369,000 KRW
369,000 KRW
The supporter's personal deduction is larger, so it ends with 'separate taxation'
* This is the estimated reduction; if the income bracket changes due to the personal deduction, the comprehensive income tax rate may change.
When a prize exceeds 3 million KRW, comprehensive income tax filing is required!
When the prize value exceeds 3 million KRW, both low-income taxpayers and dependents must file a comprehensive income tax return, with no need to consider anything else. Income earners with other income exceeding 3 million KRW are required to file a comprehensive income tax return. If a dependent files a comprehensive income tax return, they will be excluded from the supporter's personal deduction.
Refund amount examples by income and prize value
The withholding tax refund amount varies depending on the prize value and the winner's income. When the tax base exceeds 50 million KRW, the comprehensive income tax rate is 24% while the withholding tax paid was 22%, so it is better not to apply for a refund. Depending on the tax base, you may receive a refund or may face additional collection. Below are examples of the estimated refund by prize value.
Refund examples by prize value and comprehensive income tax rate
(unit: KRW)
When a prize of 900K KRW is received
| Category | Withholding tax [amount paid in advance] | Comprehensive income tax | Refund | |
|---|---|---|---|---|
| Actual amount payable | Comprehensive income tax rate | |||
| Dependent (student / homemaker, etc.) | 198,000 | 59,400(900K KRW*6.60%) | 6.60% | 138,600 |
| Taxpayer with annual income of 30M KRW | 198,000 | 148,500(900K KRW*16.50%) | 16.50% | 49,500 |
| Taxpayer with annual income of 70M KRW | 198,000 | 237,600(900K KRW*26.40%) | 26.40% | -39,600 Additional collection at comprehensive income tax filing, no refund application |
When a prize of 2M KRW is received
| Category | Withholding tax [amount paid in advance] | Comprehensive income tax | Refund | |
|---|---|---|---|---|
| Actual amount payable | Comprehensive income tax rate | |||
| Dependent (student / homemaker, etc.) | 440,000 | 132,000(2M KRW*6.60%) | 6.60% | 308,000 |
| Taxpayer with annual income of 30M KRW | 440,000 | 330,000(2M KRW*16.50%) | 16.50% | 110,000 |
| Taxpayer with annual income of 70M KRW | 440,000 | 528,000(2M KRW*26.40%) | 26.40% | -88,000 Additional collection at comprehensive income tax filing, no refund application |
When a prize of 5M KRW is received
| Category | Withholding tax [amount paid in advance] | Comprehensive income tax | Refund | |
|---|---|---|---|---|
| Actual amount payable | Comprehensive income tax rate | |||
| Dependent (student / homemaker, etc.) | 1,100,000 | 330,000(5M KRW*6.60%) | 6.60% | 770,000 |
| Taxpayer with annual income of 30M KRW | 1,100,000 | 825,000(5M KRW*16.50%) | 16.50% | 275,000 |
| Taxpayer with annual income of 70M KRW | 1,100,000 | 1,320,000(5M KRW*26.40%) | 26.40% | -220,000 Additional collection at comprehensive income tax filing, no refund application |
How to apply for a withholding tax refund
A withholding tax refund can be applied for during the May comprehensive income tax filing period. After logging in to Hometax, go to comprehensive income tax filing, then regular filing, check the income type as 'other income', and enter the account info for the refund.
Comprehensive income tax filing is available on the Hometax site in May
* How to apply: Hometax > Comprehensive income tax filing > Regular filing > Check income type as 'other income'
Tax Basics Worth Knowing for Businesses (Prize Providers)
If you want to cover the winner's withholding tax
When awarding a prize worth 1 million KRW, the winner pays 22% of the prize value as withholding tax. The business bears the 1 million KRW cost, and the winner bears a 220,000 KRW cost.
If you want to cover the winner's withholding tax, you must pay the tax with the withholding tax included in the prize value when awarding a prize worth 1 million KRW, let's look at how to calculate the withholding tax to be covered.
Since 22% withholding tax must be included on the 1 million KRW prize value, it is calculated in reverse as shown in [Figure 1]. Dividing the prize value by 0.78 gives the total amount to be borne, 1,282,051 KRW. In the end, the business pays 1 million KRW for the prize and remits 282,051 KRW in tax.
[Figure 1] Calculation method when covering the withholding tax
Prize cost
+
withholding tax
+
withholding tax
-
Prize cost
+
withholding tax
+
withholding tax
× 0.22 =
Prize value
1M KRW
1M KRW
Prize value1M KRW
1 - 0.220.78
=
Prize cost
+
withholding tax
= 1,282,051
+
withholding tax
= 1,282,051
Document filing tasks to handle when awarding a prize
A company that awards prizes must withhold other income and file a withholding tax return. It must also submit a payment statement listing the winner's personal info. However, if the prize value is 50,000 KRW or less, the obligations to withhold and submit a payment statement are exempted.
A withholding tax return must be filed by the 10th of the month following the payment, so we recommend providing the info to your tax agent in the month the prize is paid.
* Info needed when filing other income: prize payment date, individual prize winning amount, withholding tax bearer (winner / organizer), name, resident registration number
Filing and document submission criteria differ by prize value
| Prize value | Withholding obligation (submission of performance status report) | Withholding tax filing | Payment statement submission |
|---|---|---|---|
| 50K KRW or less | X | O | X |
| Over 50K KRW | O | O | O |