'Marriage Gift' Tax-Free Up to 300 Million KRW for Couples... Annual Income 70 Million KRW Also Eligible for Child Tax Credit [2023 Tax Reform]

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From now on, up to 100 million KRW will be deductible for assets gifted by parents within four years before and after marriage. This reflects the practical conditions where support is received from parents for jeonse deposits, home purchase funds, etc., around the time of marriage, aiming to encourage marriage. Additionally, the criteria for child tax credits, which were only provided to low-income households, will be relaxed to expand benefits, and full tax deductions without limits will be available for medical expenses of infants aged six and under.

According to the government's '2023 Tax Law Amendment Plan' announced on the 27th, starting January next year, a deduction of 100 million KRW will be allowed for assets gifted by parents within two years before and two years after the marriage registration, totaling four years. This means that up to 100 million KRW of gifts made within four years before and after marriage registration will not be subject to separate gift tax. With the four-year period set around marriage, newlyweds marrying this year will also be able to benefit from the expanded gift tax deduction for marriage funds.

Currently, when parents gift to their children, only up to 50 million KRW is exempted from gift tax under general gift tax regulations. Therefore, if the groom and bride each receive 150 million KRW from their parents as marriage funds, they must each pay 9.7 million KRW, totaling 19.4 million KRW in gift tax. This amount is calculated by applying a 10% tax rate to the taxable base of 100 million KRW after deducting the basic exemption of 50 million KRW from the gifted 150 million KRW, then applying a 3% tax credit for voluntary reporting. Going forward, with an additional 100 million KRW marriage deduction applied, if the total exemption reaches 150 million KRW, no gift tax will be due.

The government decided not to impose special usage restrictions on the gifted assets eligible for the deduction. Since the types of marriage funds and ways of using marriage expenses are diverse and complex, specifying usage would not cover the various real-life cases. Jeong Jeong-hoon, Director of the Tax Policy Division at the Ministry of Economy and Finance, explained, “The gifted assets could be used for monthly rent, but the couple might have already applied for a housing subscription or live in their parents’ house. If the government strictly restricts the use of gifted assets, it would conflict with the purpose of the deduction, which is to facilitate marriage encouragement.” The somewhat long four-year period was also set to enhance taxpayer benefits.

The government will also raise the ceiling for child tax credits and relax eligibility requirements. The child tax credit is a system to support low-income households raising children under 18 years old. Currently, households with a combined annual income under 40 million KRW receive up to 800,000 KRW per child annually. Starting January 1 next year, the income threshold will be raised to under 70 million KRW, and the maximum payment will be increased to 1 million KRW.

This aims to expand childcare support benefits to the middle class and encourage childbirth. The government expects that with the criteria change, more than 1 million households will receive the credit, up from the current 580,000 households. Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho explained, “Instead of concentrating benefits only on low-income levels, we are expanding benefits closer to the middle class to alleviate the burdens of childbirth and childcare.”

The non-taxable limit for childbirth and childcare allowances will also be increased from 100,000 KRW to 200,000 KRW per month, and tax support for corporate childbirth and childcare subsidies will be strengthened. This means that childbirth congratulatory money paid to employees will be recognized as expenses within socially accepted limits to support the creation of a family-friendly culture. For medical expenses of infants aged six and under, full tax deductions without limits will be allowed, and postpartum care expenses will have the total income limit removed, greatly expanding the scope of tax deduction eligibility.

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